Announcements

NEM retains A- rating

The domestic Naira currency claims paying ability rating accorded to NEM Insurance Plc (“NEM”) has been affirmed at A- (single A minus). NEM has reported robust underwriting profitability over the past three years, underpinned by very low earned loss ratios and associated claims provisioning (relative to the peer group, as well as international norms). This notwithstanding, the insurer’s provision for bad and doubtful debts rose by a high 82% in F09, to N902m, following the application of 2010 provisioning guidelines to its F09 results. Accordingly, management expenses increased by a significant 39% in F09, to N2bn, translating into an expense ratio of 50% (F08: 38%). The increase in the cost structure reversed the upward trend in the underwriting margin evidenced over the review period.

Profit margin compression is anticipated in the medium term, in line with an expected normalisation of loss ratios and market development. In this regard, note is taken of the low levels of claims reserving in the industry in general, which has culminated in very low loss ratios exhibited compared to other African markets. This is not considered sustainable in the long term.

NEM displays adequate capitalisation levels relative to regulatory requirements in absolute terms, although note is taken of the relatively low coverage of minimum paid up capital by statutory net surplus assets (of 1.1x) as of 1H F10. While the international solvency margin remains healthy relative to regional norms, the figure is below the peer group average (following the robustness of competitors’ recapitalisation initiatives in recent years). This notwithstanding, credit protection has been bolstered by the insurer’s comfortable (albeit somewhat volatile) liquidity levels.

In terms of the Nigerian Insurance Commission’s market growth initiatives, although it cannot be quantified presently, GCR is of the opinion that it will impact positively on insurance companies and the sector as a whole in the medium term. Furthermore, the reforms in reporting, debtors provisioning and capital are expected to have a positive impact on the financial stability of the sector.

Marc Chadwick
https://globalratings.net/uploads/files/GCRinsights_March_2011.pdf

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