Lagos Nigeria, 06 November 2018 – Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to Law Union and Rock Insurance Plc of A-(NG), with the outlook accorded as Stable. The rating is valid until September 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Law Union and Rock Insurance Plc (“LUR”) based on the following key factors:
LUR maintained very strong liquidity, supported by the considerable amount of cash investments (N5.6bn) at FY17. Cash and cash equivalent grew 42.8% at FY17, underpinned by additional capital injections during the year, as well as inflows from investing activities. Accordingly, key liquidity metrics continued to register at very strong levels, with cash coverage of average monthly claims and net technical provisions equating to a higher 90.9 months and 2.1x respectively at FY17 (FY16: 55.9 months and 1.4x respectively). GCR expects liquidity metrics to remain within a strong range over the rating horizon, supported by conservative asset allocation.
Capital grew by 28.3% to N6.5bn at FY17, supported by healthy earnings and additional capital injection during the year. As such, risk adjusted capitalisation registered at very healthy levels over the review period, supported by capital growth catering for the quantum of insurance risks. In this regard, the ratio of shareholders’ funds to net earned premium equated to a higher 247.2% at FY17 (FY16: 189.2%). GCR expects risk adjusted capitalisation to register at very strong levels over the rating horizon, supported by internal capital generation with limited market risk exposure. Furthermore, maximum net deductibles per risk and event are at conservative levels relative to capital, while the reinsurance panel reflects an intermediate aggregate level of credit strength.
LUR’s earnings capacity measured at moderately strong levels over the review period. This has mostly been supported by robust investment returns with the operating margin averaging 16.5% over the review period. However, underwriting performance remained weak and has exhibited a level of volatility over the review period, impacted by high operating costs. Earning capacity is expected to remain at moderately strong levels, with investment returns being a major driver.
LUR’s business profile is viewed to be limited, with the fairly diverse product base being offset by limited market share (2% of total short term industry GWP in FY17). In this respect, five lines of business contribute meaningfully to the premium base, while fluctuating premium growth has negated market penetration. Although, the insurer expects to sustain and possibly improve on its current market share as it increases its capital base to enable it underwrite more risk.
Upward movement in the rating or outlook may follow attainment of sustainable underwriting profitability and an improvement in market share, while maintaining liquidity and solvency metrics at strengthened levels. The rating would be sensitive to a sustained deterioration in key credit protection metrics and/or sustained weakness in operating performance
NATIONAL SCALE RATINGS HISTORY
Initial rating (September 2014)
Claims paying ability: BBB+(NG)
Rating outlook: Positive
Last rating (October 2017)
Claims paying ability: A-(NG)
Rating outlook: Stable
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Nigeria Short Term Insurance Bulletin, 2017
Glossary of Terms/Ratios (February 2016)
LUR reports, 2014- 2017
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES 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; 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, Law Union and Rock Insurance Plc., and therefore, GCR has been compensated for the provision of the rating.
Law Union and Rock 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 above was disclosed to Law Union and Rock Insurance Plc.
The information received from Law Union and Rock 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 numbers
• Management accounts to 31 July 2018
• Budgeted financial statements for 2018
• 2018 reinsurance cover notes
• Actuarial valuation to 31 December 2017
• Other related documents.