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
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
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.