AIICO Insurance Financial Strength Rating Upgraded –GCR
AIICO insurance’s financial strength rating has been upgraded by a notch to AA(NG) from AA-(NG) with an outlook accorded as stable by an emerging market rating agency, GRC Ratings.
Simultaneously, the rating note indicates that the Insurer‘s international scale financial strength rating has been maintained at B-. Both ratings have been placed on a stable outlook.
GCR stated that the ratings reflect the strengths and weaknesses of AIICO and its subsidiaries, with the insurer being the core operating entity of the group, contributing more than 95% and 80% of gross premiums and total assets respectively.
The rating note added that the company’s credit profile is characterised by a sustained strong market position and risk-adjusted capitalisation, offsetting volatile earnings.
In 2021, the group registered a gross premium growth rate of 16% from 24% in 2020, driven by the core operating entity, sustaining its overall weighted market share of about 12%, according to GCR Ratings.
It noted that the general insurance business’s market share increased to 5.4% in 2021 from 5.0% in the previous year in line with their growth strategy and also due to price revisions by reinsurers on some business lines.
AIICO’s life business sustained a market share of about 20% on account of growth in individual life risks, the rating note said. It added the group is well diversified with five lines of business contributing materially to the short-term business and two lines in the life business though skewed to the ordinary life that contributes more than 55% of gross premiums.
“Going forward, we anticipate the group’s market position and diversification to be sustained, supported by its wide distribution network”, GCR rating stated.
It said the group’s risk-adjusted capitalisation remained within strong levels over the review period, underpinned by internal capital generation and conservative dividend distribution.
As such, the group’s capital base increased to NGN 38.4 billion in 2021, a strong increase when compared with NGN 34.7 billion in 2020 and NGN 28.9 billion in 2019 resulting in a GCR Capital Adequacy Ratio of above 3x.
GCR said the insurer’s statutory solvency margin ratio was sustained above 3x in the same period, giving credence to the top-notch improvement in its financial strength rating.
The group remains susceptible to investment dynamics that impact the level of reserving for the life and annuity fund, the insurer’s aged premium receivables remained very low, supported by the no premium no cover regulations in the sector.
Over the outlook horizon, the rating note indicates an expectation that AIICO’s net positive earnings will continue sustaining the GCR CAR above 3x.
The group’s cash and stressed assets coverage of short and medium-term technical reserves and liabilities registered at around 1x, albeit with a contraction in assets having been experienced in 2021, the rating note said.
GCR said this was mainly due to decreased value in government securities -that constituted more than 70% of total investments- following increased market yields. READ: GCR Upgrades NEM Insurance on Sustained Earnings Strength
“We expect the GCR liquidity coverage to be maintained slightly above 1x, underpinned by the sustenance of a conservative investment allocation”. AIICO Insurance’s average earnings over the review period moderated due to post COVID-19 pandemic effects and other economic challenges faced by policyholders, according to GCR Ratings
In this respect, the claims and benefit ratio increased to 68.2% in 2021 from 60.0%), on the back of increased surrenders and maturity benefits in the ordinary life business as well as the scale down of the annuity business.
This countered the favourable claims experience in the non-life business. Earnings in 2021 were also affected by increased yields in the bond market that resulted in life reserve releases of about NGN 20.8 billion and write-downs of these assets by about NGN 34.7 billion, offsetting NGN 2.4 billion gains realised from the partial disposal of its erstwhile pension subsidiary (AIICO Pension Managers Limited).
Then, the group return on revenue moderated to 4.3% as against 9.2% in 2020 and 13.0% in 2019. Earnings pressures are likely to persist in the near term, given the market sensitive products that the insurer underwrites and volatile claims, GCR said.
The stable outlook reflects GCR’s expectation of the business profile being sustained, and high levels of risk-adjusted capitalisation, reflected by a sustained GCR CAR of above 3x, saying these strengths are expected to balance earnings volatility over the outlook horizon. # AIICO Insurance Financial Strength Rating Upgraded –GCR
