Lagos Nigeria, 31 December 2018–Global Credit Ratings has affirmed the international scale claims paying ability ratings assigned to WAICA Reinsurance Corporation Plc of B+; with the outlooks accorded as Stable. Furthermore, Global Credit Rating affirmed the national scale claims paying ability rating assigned to WAICA Reinsurance Corporation Plc of A+(NG), with outlook accorded as Stable. The national scale rating exclusively measures the capacity of the reinsurer to meet Naira-based obligations in Nigeria. The ratings are valid until October 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to WAICA Reinsurance Corporation Plc’s (“WAICA Re” or “the reinsurer”) based on the following key criteria:
WAICA Re’s improved competitive position in terms of geographical spread and franchise across the African reinsurance market, despite its relatively short track record of less than a decade. The reinsurer has increased its penetration in the West African core market and built on potential for growth across eastern, northern and southern Africa. Furthermore, the rating is supported by the reinsurer’s strong capitalisation, with the adjusted international solvency ratio measuring above 100% throughout the five years of review, catering for insurance and market exposure, as well as weakening aged debtors. GCR expects capitalisation to remain at sound levels over the rating horizon, on the back of strong internal capital generative capacity coupled with the reinsurer’s intention to raise additional capital in the short to medium term.
Despite a decline in liquidity metrics in FY17, due to the transfer of cash for the capitalisation of WAICA Re (Kenya) Limited, the liquidity profile remained strong and supportive of the rating. Cash coverage of average monthly claims and technical liabilities stood at 36 months and 1.6x at FY17 (FY16: 51 months and 2.0x) respectively, underpinned by sound operational cash inflow and conservative asset allocation. Going forward, liquidity metrics are expected to remain strong over the short to medium term.
Earnings are considered to be fairly diversified across various African markets. While the reinsurer displayed a heavy reliance on two major business lines, product risk remained moderate in FY17. Going forward, while geographical diversification is expected to be sustained, concentration along certain business lines is likely to remain in the short to medium term, as business diversification effort will take a while to manifest.
WAICA Re’s earnings capacity is considered sound, underpinned by consistently robust underwriting profitability. The underwriting margin averaged 18% over the last three years (FY17: 17%), supported by a contained net incurred loss ratio (three-year average: 32%), and cost efficiencies (three-year operating expense ratio: 21%). While underwriting profitability may remain within the current range over the rating horizon, GCR’s opinion of earnings capacity may be impacted by premium collection developments and exchange rate fluctuations.
Counterparties to the retrocession arrangements comprised rated institutions with sound credit profiles. The reinsurer’s largest retention per risk/ per event for FY18 stood at USD2m, measuring at less than 1% of shareholders’ funds.
An upward review of the rating may follow a sustained improvement in earnings profile and the key protection metrics. Also, a significant improvement in debtor management which impacts positively on solvency and /or liquidity metrics may be considered positively. However, a downward movement of the rating may follow a sustained decline in liquidity metrics and international solvency ratio. Also, significant increase in receivable such that it impacts solvency margin may result in a negative rating action.
NATIONAL SCALE RATINGS HISTORY INTERNATIONAL SCALE RATINGS HISTORY
Initial rating (November 2015) Initial rating (November 2015)
Claims paying ability: A-(NG) Claims paying ability: B+
Outlook: Positive Outlook: Stable
Last rating (March 2018) Last rating (March 2018)
Claims paying ability: A+(NG) Claims paying ability: B+
Outlook: Stable Outlook: Stable
Senior Credit Analyst
+234 1 904 9462-3
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Short-term Insurance Companies (updated July 2017)
Glossary of Terms/Ratios (February 2016)
WAICA Re’s rating report (2015-18)
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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The ratings were solicited by, or on behalf of, WAICA Reinsurance Corporation Plc, and therefore, GCR has been compensated for the provision of the ratings.
WAICA Reinsurance Corporation 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 ratings have been disclosed to WAICA Reinsurance Corporation Plc with no contestation of the ratings.
The information received from WAICA Reinsurance Corporation Plc and other reliable third parties to accord the credit ratings included:
• Audited financial results to 31 December 2017
• Four years of comparative audited numbers
• Unaudited interim results to 30 September 2018
• Budgeted financial statements for 2018
• The current year retrocession cover notes, and
• Other related documents.