GCR Affirms Leadway Assurance Financial Strength Rating
GCR Ratings has affirmed Leadway Assurance Company Limited’s national scale financial strength rating of AA+ (NG), with a stable outlook. In a rating note, the emerging market African rating agency said its rating affirmation on Leadway Assurance balances the company’s strong domestic franchise, sound risk adjusted capitalisation, adequate liquidity against heightened claims pressures and the adverse impact of currency movements.
Leadway is a composite insurer with a strong domestic franchise in Nigeria and growing operations in Cote D’Ivoire through two subsidiaries, GCR said. Its subsidiaries, Leadway Vie, a life business and Leadway IARD, are considered as short-term business.
GCR said in the rating note that these subsidiaries collectively contributed 9.4% to Gross Written Premiums (GWP) in 2023, up from 1.8% in 2022, with growth largely from the non-life business.
Thus, Leadway’s gross written premium grew by 34.3% to N124.2 billion, which was about USD138 million in 2023, maintaining about 12% of premiums generated in the primary market.
Nonetheless, product concentration in the annuities business that accounted for over 40% of Net Written Premiums (NWP) constrains assessment, particularly because of the earnings volatility associated with the product across the industry.
“We recognise that the insurer has an asset liability management function that manages the associated product volatility”.
Over the next 12-18 months, GCR stated that it expects continued growth in the premium income to maintain Leadway’s leading position in the Nigerian market, supported by a wide distribution network, products drive and strong brand.
GCR said the company’s risk adjusted capitalisation remained strong over the review period, evidenced by GCR Capital Adequacy Ratio (CAR) of over 2x in 2023.
Similarly, the Insurer’s regulatory solvency margin ratio was strong at 8.4x – up from 5.2x in 2022- in the same year.
GCR said Leadway’s strong capitalisation is supported by good earnings generation and retention and is evidenced by shareholders’ funds of N144.3 billion or USD160.5 million as of 31 December 2023.
Despite the N6.75 billion IFRS 17 transitional loss impacting the 2022 shareholders’ funds, the capital base was significantly boosted by substantial unrealised foreign exchange gains of N68.2 billion from its net asset foreign currency position in 2023.
“Over the outlook horizon, we expect the Insurer’s GCR CAR to remain above the 2x level, on the back of positive earnings and low market risk exposures.
“We recognise that the dominance of the annuities business line as well as the dynamics of interest rate movements causes some level of volatility in reserving; however, the strong capital base continues to support asset liability management”, GCR said.
The rating note also revealed that Leadway’s liquidity is a positive rating factor in its credit assessment.
According to GCR note, Leadway’s total investment portfolio which printed at N556.9 billion or USD619. 2 million in 2023 from N417.0 billion in 2023 was dominated by local currency government bond.
Details showed that local currency bond accounted for 59.4% of Leadway’s investment portfolio in the period. Thus, cash and stressed assets covered short and medium-term technical reserves as well as other potential short-term cash obligations 1.3x versus 1.5x in 2022.
“Based on our expectations that Leadway would maintain its existing investment allocation strategy that prioritises highly liquid investments, the GCR liquidity coverage ratio is likely to remain within the 1.3x to 1.5x range over the next 12-18 months”.
GCR said during the financial year 2023, the Insurer’s underwriting income was impacted by significant claims in the engineering and oil and gas business lines, further compounded by the effects of the naira devaluation.
The rating note added that a negative insurance result of N20.7 billion was recorded in 2023 due to a larger insurance expense deficit compared to the negative insurance result of N56 million in the previous year. The company’s net loss ratio spiked to 157.0% and culminated in a combined ratio of about 190%, according to GCR.
However, ratings analysts stated that the overall financial performance for the year under review was bolstered by investment income from a large investment portfolio and significant unrealised gains from price and exchange rate movements.
As a result, total yield on the investment portfolio jumped to 22.6% from 7.3% in 2022, while the realised investment yield registered low at 10%, like the prior year. Overall, the group’s return on revenue strengthened to 58.2% in 2023 from 15.7% in 2022 and compared favourably with peers.
“… we do not anticipate that the current combined ratio will be maintained over the next 12 months, we expect underwriting income to remain pressured by ongoing challenges in the operating environment”, GCR said.
The rating firm said the stable outlook reflects expectation that Leadway will maintain a leading position in the Nigerian insurance market, while increasing diversification strengths through its operations in Cote D’Ivoire.
“We expect good earnings to keep risk adjusted capitalisation at high levels with a GCR CAR maintained above 2x”. #GCR Affirms Leadway Assurance Financial Strength Rating Oyo State Begins e-payment of Retirees’ Gratuities
