Lagos Nigeria, 18 November 2019 — 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 2020.
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 retained its position as the market leader within the Nigerian insurance industry amidst increasing competitive dynamics and macro-economic challenges, controlling an estimated 24.8% market share. The insurer has continued to defend this position through its strong brand recognition, established broker relationships and speedy service delivery.
The insurer’s liquidity is considered strong and a key rating strength. Liquidity metrics registered within a strong range in FY18, with cash coverage of net technical liabilities at a stable 1x at FY18, and coverage of average monthly claims registering at 41 months (FY17: 29.3months). GCR expects liquidity metrics to remain within a strong range over the rating horizon, given the conservative investment strategy and the insurer’s internal cash flow generation capacity.
Shareholders’ funds remained strong at N45.3bn at FY18, albeit representing a 3.8% decline over the FY17 position. The reported decline was underpinned by changes in the fair value of available for sale financial instruments. Nonetheless, the capital base was maintained at an adequate level sufficient to cater for the assumed underwriting and market risk, and is expected to be maintained at adequate levels going forward, based on the insurer’s historical premium mix and level of risk envisaged.
Leadway continued to maintain a strong asset/liability matching for the life business, with 77% of its investment portfolio held in near liquid instruments, and the maturity profile and yields of investment assets closely matching obligations on funding liabilities. However, note is taken of the shortfalls on the non-life business investment portfolio relative to net technical liabilities, which is considered to reduce GCR’s assessment of the insurer’s asset/liability matching to a moderate level. In this regard, management’s ability to remedy the non-life book is a key rating input over the medium term.
Leadway has evidenced notable earnings volatility over the review period, largely a function of unstable claims experience and recently a high cost structure. However, for FY18, this was partly mitigated by the sizeable investment portfolio, which generated sound returns. As such, though the insurer recorded net profitability in both long term and short term businesses during FY18, it represented a year-on-year decline. This translated to a lower ROaE of 19.9% on a consolidated basis in FY18 (FY17: 54.4%). Volatility in earning may persist going forward as the insurer may remain susceptible to short term movements in exchange rates and fair value movements.
The strength of Leadway’s reinsurance counterparties is positively considered, with lead reinsurers on the programme reflecting strong to moderate ratings on an international scale. Reinsurance is adequately utilised, with overall retention and maximum net deductibles per risk and event measuring at a conservative level.
The volatile earnings profile limits the likelihood of an upgrade over the medium term. However, positive rating action could emanate from improved earnings persistency on both life and non-life businesses, while maintaining solvency and liquidity metrics at strong ranges. Conversely, downward rating movement may result from a substantial and sustained weakening in risk adjustment capitalisation and/or liquidity metrics. Furthermore, a significant loss of market share would be negatively considered.
NATIONAL SCALE RATINGS HISTORY
Initial rating (July 2001)
Claims paying ability: A(NG)
Rating outlook: Stable
Last rating (October 2018)
Claims paying ability: AA-(NG)
Rating outlook: Stable
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 2001-18
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; and d.) the rating expire in September 2020.
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.
The information received from Leadway Assurance Company Limited and other reliable third parties to accord the credit rating included:
• Audited financial results to 31 December 2018
• Four years of comparative audited numbers
• Unaudited interim results to 30 June 2019
• Budgeted financial statements for 2019
• Actuarial report to 31 December 2018
• The current year reinsurance cover notes, and
• Other related documents.