Johannesburg, 20 Dec 2013 — Global Credit Ratings has today affirmed the national scale claims paying ability rating assigned to Leadway Assurance Company of A+(NG); with the outlook accorded as Negative. The rating(s) are valid until 11/2014.
Global Credit Ratings has accorded the above credit rating(s) on Leadway Assurance Company based on the following key criteria:
Leadway Assurance Company Limited’s (“Leadway”) market position as a top tier player in the Nigerian insurance industry is viewed to be a rating strength, augmented by its leading position in the short term industry. This has been complemented by significant growth in the life assurance industry, with notable premium uptake emanating from the review of the Pension Reform Act (implying growth sustainability). Earnings diversification is viewed to be low, however, underpinned by the insurer’s very high weighting in oil and gas risks (F12: 64%, F11: 48%). Notably, this exposes the insurer’s revenue to the oscillations of project streams and annual renewal processes within this sector.
Capital adequacy is viewed as a relative rating weakness, with prospective solvency metrics potentially falling below A+(NG) parameters over the short term, underpinning the “Negative” outlook. Capital risk is exacerbated by the high weighting of risky assets within the insurer’s investment portfolio, as well as sizeable receivable balances which give rise to counterparty risk. The insurer would need to achieve higher earnings stability, while limiting market and counterparty risk exposure in order to impact positively on GCR’s medium term view of solvency strength. The insurer’s liquidity risk is viewed to be high, with cash coverage of net technical reserves deteriorating to a low 0.3x at FYE12.
The actuarial valuation points to the capital adequacy in respect of life business carried out in Nigeria, with the life fund covering the liabilities under the life policies as at FYE12. Leadway has evidenced significant underwriting volatility throughout the review period, which has served to undermine the insurer’s financial profile. Compounded by substantial fair value diminutions, continued variance is likely to feed through to the insurer’s bottom line.
New regulatory guidelines on insurance premium collections and remittances prohibit underwriters from providing policy cover without premium collection. This bodes well for asset quality at an industry level going forward, given the persistently high level of premium receivables and concomitant asset write-downs historically. The stringent execution of the cash and carry policy represents an important factor over the rating horizon.
Upward movement on the rating or outlook could develop following a material and sustained improvement in the insurer’s solvency levels and trend, coupled with the stabilisation and strengthening of liquidity levels. This must be supported by controlled and diversified growth, accompanied by reduced exposure to capital market volatility. Negative rating action may follow solvency metrics being sustained at existing low levels, or weakening further. A softening in liquidity metrics, an increase in capital exposure to equity-related instruments, and/or a deterioration in operating performance, particularly additional losses resulting in capital erosion, may also result in downward ratings pressure.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July/2001)|
|Claims paying ability: A(NG)|
|Last rating (Nov/2012)|
|Claims paying ability: A+(NG)|
|+2341 462 2545|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
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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.
Leadway Assurance Company 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/s has been disclosed to Leadway Assurance Company with no contestation of the rating.
The information received from Leadway Assurance Company and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, unaudited year to date management accounts to October 2013, the current year reinsurance cover notes, actuarial valuation statement, debtors provisioning policy document, reserving methodologies, and other related rating information.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.