Announcements Insurance Rating Alerts

GCR affirms Tangerine General Insurance Limited’s (formerly Law Union and Rock Insurance Plc) national scale financial strength rating of A-(NG); Outlook Stable

Lagos, 14 December 2021 – GCR Ratings (“GCR”) has affirmed Tangerine General Insurance Limited’s national scale financial strength (formerly claims paying ability) rating of A-(NG), with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Tangerine General Insurance Limited Financial strength National A-(NG) Stable Outlook

Rating rationale

The rating of Tangerine General Insurance Limited (“Tangerine General”, “the insurer”) reflects the insurer’s strong financial position, attributed to very strong risk adjusted capitalisation and sound liquidity. These strengths are partially offset by limited competitiveness in the highly fragmented Nigerian insurance industry.

Law union and Rock Insurance Plc became a wholly owned subsidiary of Verod Capital Management Limited, under the Tangerine Africa brand, following a 100% acquisition of its shares in 2020. A change of name to Tangerine General Insurance Limited followed this acquisition. Tangerine Africa (“the Group”) has subsidiaries operating across various sectors of the economy, albeit the key focus remains the financial services space. The Group has interests in subsidiaries that operate in insurance (life, non-life, and health), banking, e-commerce, travel and tourism, logistics, and gaming among others.

Tangerine General is a small sized player within the short-term Nigerian Insurance industry, with review year estimated market and relative market shares of about 1.7% and 0.5x respectively. The insurer’s premium base is well diversified, with four lines of business contributing over 10%. However, note is taken of distribution channel concentration, where brokers contribute about 95% to the premium base. Going forward, the insurer expects to reduce its reliance on brokers and increase direct sales business using technology, which is being actively deployed. Also, the insurer intends to leverage on group synergies to boost its competitive profile.

Earnings capacity is a rating constraint, underpinned by the high-cost structure. Net profit has largely been supported by investment income over the years, thus exposing earnings to some level of volatility. This was evidenced by a decline in realised investment income in FY20, and losses reported on fair valuation of investment property, which led to about 95.3% year-on-year decline in net profit. Looking ahead, the earnings trend is unlikely to change over the medium term, with an elevated cost structure expected to persist, given recent investments in technology, rebranding, and the ongoing publicity campaign.

Capitalisation is a positive rating factor. Tangerine General has maintained very strong risk adjusted capitalisation over the review period, with the sizeable capital base sufficiently catering for the insurance and market risks assumed. In this regard, the GCR capital adequacy ratio (“CAR”) stood at 3.9x at FY20 (FY19: 3.2x), evidencing good loss absorbing capacity. Shareholders’ funds rose notably (58.1%) year-on-year to N11.3bn at FY20, following additional capital injection during the year. On a statutory basis, the insurer’s statutory solvency remained sound at FY20, with assets coverage of liabilities equating to 2.5x (FY19: 1.1x) against the regulatory minimum of 1x. Going forward, consistent earnings generation and retention could continue to underpin internal capital build, with the GCR CAR expected to be maintained at very strong levels over the rating horizon.

Liquidity measured at a sound level, with about 60% of the insurer’s investment pool held in cash and equivalents. Liquidity coverage of net technical liabilities registered at a higher 2.5x at FY20 (FY19: 2.0x), while operational cash coverage stood at 34.5 months (FY19: 25 months). Furthermore, claims cash coverage stood at a strong 95.3 months (FY19: 66.3 months). We expect liquidity metrics to remain sound over the rating horizon on the back of conservative asset allocation.

Outlook statement

The Stable Outlook reflects our expectation that Tangerine General will maintain sufficient earnings to support the overall credit profile, with strong risk adjusted capitalisation and sound liquidity expected to be sustained over the outlook horizon. There is potential for the insurer to leverage group synergies to boost its competitive profile but this is likely to be over the medium term.

Rating triggers

Positive rating action may stem from the strengthening of the insurer’s earnings, while maintaining liquidity and capitalisation at current levels. Conversely, a negative rating action could be triggered by a further deterioration in earnings capacity.

Analytical contacts

Primary analyst Adeyinka Olowofela Senior Analyst
Lagos, NG Yinka@GCRratings.com +234 1 904 9462
Secondary analyst Ifeoluwa Haruna Analyst
Lagos, NG IfeoluwaH@GCRratings.com +234 1 904 9462
Committee chair Godfrey Chingono Deputy Sector Head: Insurance Ratings
Johannesburg, ZA GodfreyC@GCRratings.com +27 11 784 1771

Related criteria and research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Insurance Companies, May 2019
GCR Ratings Scale, Symbols & Definitions, May 2019
GCR Country Risk Scores, December 2021
GCR Insurance Sector Risk Scores, September 2021

Ratings History

Tangerine General Insurance Limited

Rating class Review Rating scale Rating class Outlook Date
Claims paying ability Initial National BBB+(NG) Positive September 2014
Claims paying ability Last National A-(NG) Stable December 2020

Risk score summary

Rating Components & Factors Risk scores
Operating environment 7.00
Country risk score 3.75
Sector risk score 3.25
Business profile (1.75)
Competitive position (1.25)
Premium diversification (0.50)
Management and governance 0.00
Financial profile 2.25
Earnings (0.75)
Capital 2.00
Liquidity 1.00
Comparative profile 0.00
Group support 0.00
Peer analysis 0.00
Total Score 7.50

Glossary

Premium The price of insurance protection for a specified risk for a specified period of time.
Provision The amount set aside or deducted from operating income to cover expected or identified loan losses.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
Reinsurance The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securities Various instruments used in the capital market to raise funds.
Security One of various instruments used in the capital market to raise funds.
Senior A security that has a higher repayment priority than junior securities.
Spread The interest rate that is paid in addition to the reference rate for debt securities.
Statutory Required by or having to do with law or statute.
Valuation An assessment of the property value, with the value being compared to similar properties in the area.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the rating is based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating is an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to the rated entity. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating. The rated entity participated in the rating process via virtual management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

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

  • Audited financial results as at 31 December 2020
  • Four years of comparative audited financial statements
  • Management account as at 30 September 2021
  • Other relevant documents.


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