Lagos Nigeria, 13 February 2020 – 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 2020.
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 ranks among the top tier players in the life insurance sub-sector, with an estimated market share of 9.1% in FY18. The insurer has continued to grow its business year-on-year, evidenced by a strong compound annual growth rate of 44.9% between FY14 and FY18. Competitive position is supported by strong brand recognition (Custodian Group franchise) coupled with well-established relationships with intermediaries. Looking ahead, 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.
Shareholders’ funds grew 63.9% at N8.6bn at FY18, with a further growth of 10% at 4Q FY19. Growth has been supported mainly by the insurer’s strong internal capital generating capacity as well as capital injection from the parent company via Rights Issue. Also, the insurer increased its Authorised share capital from N2bn to N4bn at FY18 and further to N8bn at 4Q FY19 to comply with the new regulatory capital requirement. Furthermore, the insurer is in the process of raising capital through private placement to shore up the capital base and reposition itself for more business. Accordingly, risk adjusted capitalisation remained sound, particularly given the insurer’s modest exposure to market risks. Furthermore, at FY18, the actuarial calculated capital adequacy ratio equated to a high 432% at FY18 (FY17: 263%).
Custodian Life’s rating benefits from the insurer’s strong liquidity profile. In this regard, cash covered policyholders’ liabilities by a stable 1x at FY18, with coverage of average monthly claims improving to a strong 63.3 months (FY17: 60.6 months) respectively. Going forward, in the absence of a change in investment strategy and/or asset allocation, liquidity metrics are expected to remain within strong range. Similarly, the insurer’s assets at the balance sheet date adequately matched the calculated liabilities for the same period.
The insurer continued to maintain stability in its earnings capacity in FY18, supported by growth in premium volumes, along with enhanced investment income. Accordingly, the operating margin improved to 8.8% in FY18, from 8.2% in FY17, with ROaE reported at a strong 19.1% in FY18, albeit lower than the FY17 level of 21.8%. Going forward, earnings stability is likely to be sustained, with profitability metrics expected to trend within similar ranges over the rating horizon.
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. Conversely, 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 2019
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 – 2019
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.
The information received from Custodian Life Assurance Limited and other reliable third parties to accord the credit rating included:
• The 2018 audited annual financial statements
• Four years of comparative audited financial statements
• The full year detailed budgeted financial statements to December 2019
• Unaudited financial statements to December 2019
• The reinsurance cover notes for 2019
• The actuarial valuation reports for FY18, and
• Other related documents.