Announcements Insurance Rating Alerts

GCR affirms WAICA Re’s international scale financial strength rating of B+ and revises Nigerian national scale financial strength rating to AAA(NG) on criteria change; Outlooks Stable.

Lagos, 23 July 2021 – GCR Ratings (“GCR”) has affirmed WAICA Reinsurance Corporation Plc’s (“WAICA Re”) international scale financial strength rating of ‘B+’, with a Stable Outlook. At the same time, GCR revises the Nigerian national scale financial strength rating to ‘AAA’(NG), on criteria change with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
WAICA Reinsurance Corporation Plc Financial strength International B+ Stable Outlook
Financial strength National AAA(NG) Stable Outlook

Rating Rationale

The ratings of WAICA Re are underpinned by good presence within the anglophone West Africa region. The reinsurer’s business profile is moderately strong, bolstered by strong business acquisition and continuous diversification into other markets across Africa. WAICA Re maintained sound solvency levels and healthy earnings resilience, albeit with liquidity moderating to an intermediate range, and displayed sensitivity to further premium growth.

Competitive position is supported by WAICA Re’s good franchise in its core markets (Nigeria and Ghana, collectively contributing over 50% of the gross premiums), with upward growth trajectory in other markets including the francophone West Africa, Tunisia, and most recently Kenya and Zimbabwe. GCR expects competitive position to improve over the medium term as the reinsurer begins to build traction in some of its new markets. Management and governance is neutral as it is considered to be in line with best practice.

Earnings capacity is considered strong, underpinned by demonstrated track record of sound underwriting and net profitability margins amidst high premium growth. Despite higher operating cost and claims pay-outs in FY20, the significant increase in business growth provided the reinsurer with higher loss absorbing capacity during the year. Going forward, GCR expects earnings to remain sound, though may taper down over the medium to long-term as the reinsurer begins to consolidate its growth in some of its new market.

WAICA Re’s capital adequacy is a positive ratings factor. Total capital equated to USD98.2m at year-end 2020 (FY19: USD89.4m) on the back of consistent internal capital generations. Similarly, both the international solvency and GCR capital adequacy ratio (“CAR”) were maintained well above 100% and 2.5x respectively over the review period, evidencing good loss absorbing capacity. The reinsurer plans to increase its capital to USD100m (FY20: USD98.2m) over the medium term to support its planned business growth and expansion. This could be supportive to the rating should it be successfully implemented with evidence of good capital management structures.

Due to strong growth during the review year, liquidity metrics moderated, with cash coverage of technical liabilities declining to 1.4x from an historical average of above 2x. Similarly, operational cash coverage measured at an average of 18.2 months at FY20 (FY19: 17.9 months). Going forward, the management of liquidity within a rating adequate range represents a key consideration.

Outlook Statement

The Stable Outlook reflects our expectation that WAICA Re will maintain a strong hold in its core markets, while growing its market share in other jurisdictions. Despite the significant jump in business scale and the attached increasing liabilities, GCR expects liquidity to return to the pre-FY20 position over the next 12-18 months on the back of the reinsurer’s sound internal liquidity management. We expect earnings generation to remain consistent with historical trends and as such, support risk adjusted capitalisation within the current range.

Rating Triggers

While the national scale rating is currently at its highest level, upward movement in the international scale rating is considered unlikely over the medium term but could come around with a material increase in scale, alongside positive diversification and better liquidity. Conversely, inability to translate the strengthened business profile into improved liquidity metrics, as well as exposure to group risks could result in downward revision of the ratings.

Analytical Contacts

Primary analyst Funmilayo Abdulrahman Senior Analyst, Financial Institutions
Lagos, NG Funmilayo@GCRratings.com +234 1 904 9462
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@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, February 2021
GCR Insurance Sector Risk Scores, February 2021

Ratings History

WAICA Reinsurance Corporation Plc

Rating class Review Rating scale Rating class Outlook Date
Claims paying ability Initial National A-(NG) Positive November 2015
Last National A+(NG) Stable December 2019
Claims paying ability Initial International B+ Stable November 2015
Last International B+ Stable December 2019

Risk Score Summary

Rating Components & Factors Risk scores
Operating environment 7.50
Country risk score 3.75
Sector risk score 3.75
Business profile 1.00
Competitive position 0.50
Premium diversification 0.50
Management and governance 0.00
Financial profile 3.25
Earnings 1.00
Capital 2.00
Liquidity 0.25
Comparative profile 0.00
Group support 0.00
Peer analysis 0.00
Total Score 11.75

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 ratings are based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings are 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 WAICA Reinsurance Corporation Plc and other reliable third parties to accord the credit ratings included:

  • Audited financial results as at 31 December 2020;
  • Four years of comparative audited financial statements;
  • Retrocession cover notes 2021 and
  • Other relevant documents.
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