Announcements Insurance Rating Alerts

GCR affirms NEM Insurance Plc’s Rating of A(NG); Outlook Stable

Lagos Nigeria, 10 August 2020 – Global Credit Ratings has affirmed the national scale claims paying ability rating assigned to NEM Insurance Plc of A(NG), with the outlook accorded as Stable. The rating is valid until June 2021.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating to NEM Insurance Plc’s (“NEM” or “the insurer”) based on the following key factors:

NEM consistently displayed strong risk adjusted capitalisation over the review period, underpinned by the sizeable capital base catering for the quantum of insurance and market risk exposures. However, higher growth in net earned premium (“NEP”) vis-à-vis the capital base saw the ratio of shareholders’ funds to NEP moderate to 111.6% in FY19 (FY18: 116.2%, five-year average: 98.2%), while statutory solvency coverage remained strong at 2.9x at FY19 against the regulatory minimum of 1x. Going forward, sound internal capital generation and relatively well-contained dividend distributions are likely to sustain risk adjusted capitalisation within a very strong range over the rating horizon.

The insurer’s liquidity profile is considered strong, supported by a conservative investment strategy, with a substantial 67.3% of investment funds placed in cash and equivalents. Nonetheless, the significant rise in claims payments during the year, saw the cash coverage of average monthly claims moderate for the second consecutive year to 30.5 months (FY18: 36.2 months), while cash coverage of net technical liabilities stood flat at 1.1x at FY19. GCR expects liquidity metrics to remain within a strong range, supported by sound operating cash flow generation and conservative asset allocation.

NEM’s competitive position remained strong, supported by sound brand strength, well-entrenched relationships with brokers, and sustained penetration into the retail segment. As such, the insurer continued to defend its market position, with a 6.6% market share of the non-life gross written premium. NEM’s potential to maintain market position is largely dependent on its business retention rate relative to peers over the rating horizon, amidst the economic downturn.

NEM evidenced a well-diversified premium base, with four of five business lines exhibiting material premium scale, contributing over 10% of NEP in FY19. The motor business maintained dominance of the premium base, representing 42.5% of NEP in FY19. Overall, product risk is fairly limited.

The insurer’s earnings capacity registered at an intermediate level in FY19, largely a function of the spike in claims and the relatively low investment yields in the operating environment. In this regard, the underwriting margin and investment yield declined to 6.6% and 6.7% in FY19 (FY18: 17.0% and 8.7%), respectively. In the near term, earnings capacity could be adversely impacted by the COVID-19 pandemic, given downside risks associated with elevated claims and pressures on premium volumes, as well as potential for low-interest rates to persist.

The reinsurance programme reflects a moderately high level of counterparty strength. The maximum net retention per risk and event is considered conservative, equating to a low 2.2% of FY19 capital.

An upward rating movement could follow the strengthening of the insurer’s business profile as well as a significant increase in earnings capacity. However, the rating is sensitive to a marked deterioration in earnings capacity and key credit protection metrics.

NATIONAL SCALE RATINGS HISTORY

Initial rating (August 2009)

Claims paying ability: A-(NG)

Rating outlook: Stable

Last rating (August 2019)

Claims paying ability: A(NG)

Rating outlook: Stable

ANALYTICAL CONTACTS

Analyst

Yinka Adeoti

Credit Analyst

adeoti@gcrratings.com

+2341 904-9462

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Short Term Insurance and Reinsurance Companies, updated May 2018

NEM Insurance Plc rating reports, 2009- 2019

Nigeria Short Term Insurance Bulletin, 2007-2018

Glossary of Terms/Ratios (February 2017)

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, NEM Insurance Plc, and therefore, GCR has been compensated for the provision of the rating.

NEM 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 NEM Insurance Plc.

The information received from NEM Insurance Plc and other reliable third parties to accord the credit rating included:

  • Audited financial results to 31 December 2019
  • Four years of comparative audited numbers
  • Management accounts to 30 June 2020
  • Budgeted financial statements for 2020
  • 2020 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.