Announcements Insurance Rating Alerts

GCR affirms Law Union and Rock Insurance Plc’s Rating of A-(NG), Outlook Stable

Lagos Nigeria, 14 December 2020 – 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 October 2021.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to Law Union and Rock Insurance Plc (“LUR” or “the insurer”) based on the following key factors:

LUR became a wholly-owned subsidiary of Kanuri LUR Limited in September 2020 after a 100% acquisition. The acquisition was triggered by the insurer’s need to shore up its capital base to comply with the new regulatory capital requirement. While cognisance is taken of the potential benefit from the new shareholder (in terms of increased access to funding), the imminent change in brand name may impact on the insurer’s competitive profile, given the sensitivity of the local insurance market.

LUR’s risk adjusted capitalisation remains very strong, underpinned by the sizeable capital base catering for the quantum of insurance and market risks assumed. Shareholders’ funds grew by 12.3% to N7.2bn at FY19 and stood firmer at N7.4bn at 3Q FY20, supported by high earnings retention. As a result, the ratio of shareholders’ funds to net earned premium improved to 235% at 3Q FY20 (FY19: 226.3%, five-year average: 209.2%). Going forward, GCR expects the planned capital injection to further strengthen capital base and allow for more risk uptake over the outlook horizon.

LUR maintained a very strong liquidity position, supported by conservative asset allocation as evidenced by cash and equivalents accounting for a sizeable 76.4% of the investment portfolio at FY19. This, coupled with the moderation in claims incurred during the year, saw cash coverage of average monthly claims and technical liabilities improve to 66.3 months and 2x in FY19, respectively (FY18: 47.9 months and 1.9x). GCR expects liquidity metrics to remain within a very strong range over the rating horizon, underpinned by sustained conservative asset allocation and the impending capital injection.

The insurer reflects weak underwriting margins, due to the relatively high cost structure. As a result, operating profitability is driven by realised investment income, with the operating margin averaging 18.7% over a five-year period (FY19: 16.5%, FY18: 16.3%). Net earnings have evidenced volatility over the review period, largely a function of variability in unrealised investment income which peaked at N414.8m in FY19 (FY18: N3.4m). In this regard, net profit after tax grew over three-fold to N802.8m and translated to a higher return on average equity of 11.9% in FY19 (FY18: 4.1%). In the near term, GCR expects LUR’s earnings capacity to be adversely impacted by the relatively low-interest rates and the potential escalation in claims arising from the wanton destruction of properties across the country (a fallout from the nationwide protest).

LUR’s business profile is considered to be limited, with the fairly-diversified premium base being constrained by a moderate 2% market share of the non-life gross written premium. In this respect, four lines of business contributed materially to the premium base, while market share has been somewhat restrained by the relatively modest premium growth vis-à-vis the industry’s average growth over the review period.

The reinsurance programme consists of counterparties with sound aggregated credit profile. The maximum net retention per risk and event is considered conservative, equating to a moderate 5.6% of FY19 capital.

Upward rating or outlook movement may follow attainment of sustainable underwriting profitability and an improvement in competitive position, while maintaining liquidity and solvency metrics at very strong levels. However, the rating would be sensitive to a material deterioration in key credit protection metrics and earnings capacity as well as a significant moderation in competitive position that could ensue from the imminent change in brand name.

NATIONAL SCALE RATINGS HISTORY

Initial rating (September 2014)

Claims paying ability: BBB+(NG)

Rating outlook: Positive

Last rating (November 2019)

Claims paying ability: A-(NG)

Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst

Yinka Adeoti

Credit Analyst

adeoti@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance Companies, updated May 2018

Glossary of Terms/Ratios (February 2016)

LUR reports, 2014- 2019

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 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 statements to 31 December 2019
  • Four years of comparative audited numbers
  • Management accounts to 30 September 2020
  • Budgeted financial statements for 2020
  • 2019 reinsurance cover notes
  • Actuarial valuation to 31 December 2019
  • 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.