Lagos Nigeria, 20 October 2020 — Global Credit Ratings has affirmed the national scale claims paying ability rating of AA-(NG) assigned to Leadway Assurance Company Limited, with the outlook accorded as Stable. The rating is valid until September 2021.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to Leadway Assurance Company Limited (“Leadway” or “the Insurer”) based on the following key factors:
Leadway has continued to defend its position as the market leader within the Nigerian insurance industry, despite increasing competitive pressures and macro-economic challenges, controlling an estimated 21.3% market share. The insurer’s leading position has been sustained over the years by strong brand acceptance (attested to by its strong foothold in the annuity business, as well as its leadership position on several major policies), and a well-established broker relationships.
Liquidity has been maintained within a strong range, supported by conservative assets allocation. In this regard, cash coverage of net technical liabilities remained stable at 1x, while claims cash coverage registered at 32 months (FY18: 41 months). Going forward, Leadway’s liquidity profile is expected to remain within a strong range given the conservative asset allocation.
Leadway’s shareholders’ funds remained strong at N54.3bn at FY19, representing a 19.9% improvement over FY18 position. Reported growth was on the back of strong internal capital generation during the period. While a decline of 6.5% was recorded in shareholders’ funds at end-July FY20, the capital base remains strong. In addition, risk adjusted capitalisation closed the year firmer, with the ratio of shareholders’ funds to NEP at 76.6% at FY19 (FY18: 63.7%), and is expected to be maintained at similar range going forward, based on the insurer’s historical premium mix and level of risk envisaged. Furthermore, reinsurance counterparties reflect a sound level of aggregate credit strength, with maximum net deductibles per risk and event set at conservative levels.
The insurer continued to maintain a strong asset/liability matching for the life business, with about 74% of its investment portfolio held in near liquid instruments, while the maturity profile and yields on invested assets broadly matches obligations on funding liabilities.
Leadway exhibits concentration risk in its premium base, as special risk has constituted over 50% of gross premiums over the last five year (FY19: 62.7%, FY18: 60.8%). Hence, the insurer’s drive and focus on retail business expansion and earnings diversification is positively considered.
Leadway has evidenced notable earnings volatility over the review period, largely a function of an elevated benefit experience and cost structure. However, review year profitability was supported by a sizeable flow of realised investment income, as well as fair value gains on assets during the period. As such, net profitability of N10.9bn was reported in FY19 (FY18: N9.2bn) on a consolidated basis, which translated to an improved return on average equity of 21.8% from 19.9% previously. Volatility in earnings is likely to persist going forward given the underwriter’s susceptibility to short term fair value movements.
Earnings volatility limits the likelihood of an upgrade over the medium term. However, positive rating action could emanate from an enhanced business profile, coupled with improved earnings persistency on both life and non-life businesses. Conversely, a downward rating movement may result from material and sustained weakening in risk adjusted capitalisation and/or liquidity metrics. Furthermore, a significant loss of market share may warrant negative rating action.
NATIONAL SCALE RATINGS HISTORY
Initial rating (July 2001)
Claims paying ability: A(NG)
Rating outlook: Stable
Last rating (November 2019)
Claims paying ability: AA-(NG)
Rating outlook: Stable
Senior Credit Analyst
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short Term Insurance Companies, updated May 2018
Criteria for Rating Long Term Insurance Companies, updated May 2018
Leadway rating reports 2001-19
Glossary of Terms/Ratios (February 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; 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, Leadway Assurance Company Limited, and therefore, GCR has been compensated for the provision of the ratings.
Leadway Assurance Company 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 has been disclosed to Leadway Assurance Company Limited with no contestation of the ratings.
The information received from Leadway Assurance Company Limited and other reliable third parties to accord the credit ratings included:
- Audited financial results to 31 December 2019
- Four years of comparative audited numbers
- Unaudited interim results to 31 July 2020
- Budgeted financial statements for 2020
- Actuarial report to 31 December 2019
- The current year reinsurance cover notes, and
- Other related documents.