Announcements Insurance Rating Alerts

GCR Affirms Custodian Life Assurance Limited’s rating of A(NG); Outlook Stable

Lagos Nigeria, 18 January 2021 – Global Credit Ratings has affirmed the national scale financial strength rating assigned to Custodian Life Assurance Limited of A(NG), with the outlook accorded as Stable. The rating is valid until October 2021.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Custodian Life Assurance Limited (“Custodian Life” or “the insurer”) based on the following key criteria:

Custodian Life’s shareholders’ funds remained strong at N10.5bn at 3Q FY20, representing a 10.3% rise over FY19 position. Reported growth was on the back of strong internal capital generation during the review year. This notwithstanding, coverage of policyholders’ liabilities remained low at 0.2x (FY19: 0.2x), given the reported growth in liabilities during the corresponding period (annuity business in particular). Nevertheless, risk adjusted capitalisation is considered to be adequate, supported by a sizable capital base, along with modest exposure to market risks.

Liquidity is positively considered, given moderately strong liquidity metrics at 3Q FY20. In this respect, cash and equivalents covered net technical liabilities by 1x (FY19: 1.1x, FY18: 1x), while operational cash coverage registered at 114.2 months (FY19: 83.9 months, FY18: 63.3 months). Going forward, GCR expects liquidity metrics to be maintained within similar range, given the insurer’s conservative asset allocation strategy. Similarly, asset/liability matching is considered to be fair, with about 88% of its investment portfolio held in interest bearing securities, potentially matching the behaviour of funding liabilities which are largely interest sensitive.

Earnings are a rating positive. The insurer has maintained stability in its earnings capacity, registering a review period operating margin of 7.5%. Earnings have been supported by growth in premium volumes, as well as enhanced investment income and more recently (FY19 and 3Q FY20) fair value gains. Going forward, investment income may be subdued, given the decline in interest rate yields.

Custodian Life continued to defend its position as a top tier player in the Nigerian life insurance subsector, controlling an estimated 12.3% market share. The insurer’s position has been sustained over the years by strong brand acceptance (through group synergies), experienced personnel and established broker relationships. Going forward, GCR expects Custodian Life to maintain its strong market position, underpinned by an established brand and various initiatives put in place for further market penetration. While the annuity business constitutes bulk of the insurer’s premium mix, concentration risk is considered minimal given the retail nature of the business, which comprises of about 10,000 policyholders at FY19.

An upward rating movement may result from a sustained improvement in operating performance combined with a strengthening in solvency metrics, while maintaining liquidity at strong levels. Similarly, a negative rating action may result from a persistent weakening in capitalisation metrics. Furthermore, material loss of market share and/or deterioration in earnings capacity may also give rise to negative rating pressure.

NATIONAL SCALE RATINGS HISTORY

Initial rating: September 2015

Financial strength: A-(NG)

Rating outlook: Stable

Last rating: February 2020

Financial strength: A(NG)

Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Adeyinka Olowofela

Senior Analyst

yinka@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Long Term Insurance Companies, updated May 2018

Custodian Life rating report, 2015 – 2020

Glossary of Terms/Ratios (February 2016)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLI WEB SITE AT: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE ON THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT www.globalratings.com.ng

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating 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, Custodian Life Assurance Limited, and therefore, GCR has been compensated for the provision of the rating.

Custodian Life Assurance Limited 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 above was disclosed to Custodian Life Assurance Limited without contestation of the rating.

The information received from Custodian Life Assurance Limited and other reliable third parties to accord the credit rating included:

  • The 2019 audited annual financial statements
  • Four years of comparative audited financial statements
  • The full year detailed budgeted financial statements to December 2020
  • The reinsurance cover notes for 2020
  • The actuarial valuation reports for FY19, and
  • Other related documents.
image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.