Lagos Nigeria, 12 April 2019 – Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to AIICO Insurance Plc of A(NG), with the outlook accorded as Stable. The rating is valid until November 2019.
SUMMARY RATING RATIONALE
Global Credit Rating (“GCR”) has affirmed the above credit rating applicable to AIICO Insurance Plc (“AIICO”) based on the following key factors:
The revised outlook to Stable reflects AIICO’s improved performance across most indices in FY17 and year-to-date FY18. In particular, improvements were reported in earnings, solvency and liquidity metrics.
AIICO’s liquidity profile is considered strong, supported by conservative asset allocation, which is geared towards liquid assets. Accordingly, on a consolidated basis, cash covered average monthly claims and technical liabilities by a robust 51.2 months at 3Q FY18 (FY17: 40.3 months, FY16: 48.2 months) and 2.3x (FY17: 2.3x) respectively. GCR expects liquidity metrics to remain within a very strong range over the rating horizon, provided cash generation remain sound and a conservative asset allocation maintained. Furthermore, asset liability matching of the life business is considered sound, given that the maturity profile of investment assets closely matched obligations on funding liabilities.
Shareholders’ funds grew by 30.1% to N10.3bn at FY17, with a further growth of 25% recorded at 3Q FY18, largely supported by retained earnings (fair value gains) during the period. Accordingly, the capital base was maintained at an adequate level, sufficient to cater for the underwriting and market risk assumed by the insurer. Risk adjusted capitalisation is expected to be maintained at adequate levels going forward, given the relatively contained levels of insurance and market risks envisaged, coupled with exposure to strong reinsurance counterparties. Furthermore, statutory solvency on a consolidated basis reflects adequate coverage of assets over liabilities at FY17.
AIICO has evidenced notable earnings volatility over the review period, largely a function of an elevated cost structure and reserve movements. However, for FY17, this was partly mitigated by the sizeable investment portfolio, which generated sound returns. As such, the insurer recorded net profitability in both long term and short term businesses during FY17, generating a healthy ROaE of 16.1% on a consolidated basis. Earnings capacity in the long term business may play an increasing role in the insurer’s financial profile going forward, with increasing scale efficiencies gradually facilitating healthy operating profitability.
AIICO continued to grow its business amidst increasing competition and regulatory pronouncements. While both long term and short term businesses have registered successive premium reductions in prior periods, growth was achieved in both businesses during FY17, with the life business supporting overall performance. On the competitive scale, the insurer ranks amongst the top 10 players within the domestic industry, controlling about 7.6% and 4.1% market share for life and non-life businesses respectively. Going forward, management hope to achieve continuous expansion of the premium base, leveraging on its strong brand, wide spread distribution network and established broker relationships.
The insurer’s business mix is well diversified, with five of seven lines of business contributing over 10% to the non-life gross premiums in FY17. Although with regards to the life business, the individual life business dominated the business mix, with 75.7% contribution to gross premiums during FY17. However, this does not introduce concentration risk given the granularity of the underlying policyholders.
An upward rating movement may follow a sustainable strengthening of solvency metrics and business profile, coupled with the maintenance of liquidity metrics at strong levels. Conversely, downward movement may result from a sustained weakening in capitalisation levels, and a significant loss of market share or a sustained poor operating performance.
NATIONAL SCALE RATINGS HISTORY
Initial rating (March 2016)
Claims paying ability: A(NG)
Rating outlook: Stable
Last Rating (April 2018)
Claims paying ability: A(NG)
Rating outlook: Negative
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018.
Criteria for Rating Long Term Insurance Companies, updated May 2018.
Glossary of Terms/Ratios (February 2017)
AIICO Insurance Plc rating reports 2016-2018
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The rating was solicited by, or on behalf of, AIICO Insurance Plc, and therefore, GCR has been compensated for the provision of the rating.
AIICO Insurance Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to AIICO Insurance Plc.
The information received from AIICO Insurance Plc and other reliable third parties to accord the credit rating included:
• Audited financial results to 31 December 2017
• Four years of comparative audited financial statements
• Unaudited interim results to 30 September 2018
• Budgeted financial statements for 2018
• Actuarial valuation to 31 December 2017
• 2018 reinsurance cover notes
• Other related documents.