GCR Affirms AIICO Insurance Financial Strength Ratings
GCR Ratings (GCR) has affirmed AIICO Insurance Plc’s international and national scale financial strength rating of B- and AA (NG). In a statement, the firm said both ratings were maintained on a stable outlook.
The ratings represent the strengths and weaknesses of AIICO insurance and its subsidiaries, and reflect high levels of risk-adjusted capitalisation and a strong market position of the insurer, limited by intermediate earnings, GCR added.
AIICO insurance, the core operating entity of the group, with a gross premium and asset contribution of about 99% and 90%, respectively as of 31 December 2022.
“Over the near term, we expect the group’s credit profile to be sustained, supported by sustained net earnings and premium growth”, GCR said in its rating note. As one of the leading life insurance players in Nigeria, AIICO Insurance controls a market share of 19.8% while the general business market share registered at 6.4% as of 31 December 2022.
According to the rating note, the group sustained relatively high gross premium growth over the review period to N88.3 billion. The growth in gross premium was driven by high-valued contracts secured in the oil and gas, property, and group life; competitive returns offered in the annuity book as well as organic growth in other lines.
GCR said individual life remains the main contributor to overall premiums, accounting for over 50% of gross written premium (GWP) though characterised by a high level of granularity among the policyholders.
In addition, other top five lines that also grew registered above USD5M worth of premiums, according to the firm.
Over the medium term, GCR Ratings expects that overall GWP growth will be sustained, supported by the acquisition of new high-value contracts that occurred during the current year. This includes a high renewal rate on existing business, while the overall reinsurance utilisation is expected to remain below 35% of GWP.
Earnings stabilised within the intermediate range, underpinned by high premium growth, increased interest income and a significant improvement in claims experience in general business which resulted in a lower net incurred ratio of 63.6% in 2022 relative to 68.2% in 2021.
This offset higher reserves allocated on the life and annuity fund mainly on the back of volatility in the yields on the government bonds which form the bulk of the assets of the two funds. As a result, the insurer’s benefit to total income increased to 66.8% (2021:47.6%).
Positively, due to the sustained top-line growth, the insurer’s net result remained stable, depicted by a return on total income and an average return on revenue of 6.0% and 8.0% respectively. Naira Devaluation Deepens Economic Crisis in Nigeria
GCR expects sustained premium growth to drive performance, resulting in an average return on revenue of above 5%, while factoring in volatility in underwriting results that may arise from market-sensitive products.
The rating note said the group’s risk-adjusted capitalisation is a key rating strength, bolstered by a sustained internal capital accretion and conservative dividend distribution.
As of the financial year end of 2022, the group’s capital base increased to NGN45.0 billion in the prior year. The insurer purchased corporate bonds valued at NGN2.6 billion and acquired an annuity portfolio with liabilities worth NGN28 billion as at 31 December 2022,
The rating noted that said while its asset management subsidiary acquired unlisted shares of about N7 billion. This resulted in a relatively higher market and underwriting risk, consequently moderating the GCR capital adequacy ratio (CAR) to 2.7x in 2022, though maintained within the high band of our assessment.
Additionally, AIICO insurance met the statutory capital ratio, sustaining the solvency margin ratio of about 3x. Over the outlook horizon, analysts expect GCR CAR to register above 2x, supported by sustained positive net earnings.
The group’s liquidity ratio registered at 1.8x, supported by continued reallocation of cash to mainly government securities (which constitute more than 80% of total investments) to cover both short and long-term obligations.
“We expect the liquidity ratio to register between 1.6x – 1.8x, reinforced by a sustained proportion of investment portfolio allocation and a maintained balance between investment valuation and technical reserves”
In its rating note, GCR said the stable outlook accorded AIICO reflects its expectations that the group’s credit profile would be sustained by the insurer’s premium growth and net earnings which would defend the insurer’s current market position and overall financial profile.
