Leadway Assurance Gets Healthy Financial Rating, Stable Outlook
GCR Ratings has affirmed Leadway Assurance Company Limited’s national scale financial strength rating of AA(NG) with a stable outlook, according to a recent rating note.
This is said to reflect the Insurer’s sound business and financial profiles, supported by a strong competitive position and capitalisation metrics respectively. However, the emerging markets rating agency said these are counterbalanced by limited premium diversification, and moderate liquidity metrics.
Leadway ranks amongst the leading insurance players within the Nigerian insurance industry, with a competitive position supported by its strong brand franchise and long track record of over five decades, the rating note stated.
Also, GCR said the company’s rating takes into cognisance Leadway’s improved market share and relative market share, estimated at 11.5% and 6.4x respectively in 2021 from 10% and 5.6x in 2020 following a recovery in annuity business uptake during the year.
“We expect Leadway to continue defending its competitive position going forward, given various strategic growth initiatives. In our view, geographical diversification is limited as 99% of gross premiums are derived from Nigeria while the remainder is from Leadway Vie, its Cote D’Ivoire subsidiary”, GCR said in the report.
The rating’s positive view of the insurer’s competitive position is balanced by the concentration of the premium base in both the life and non-life business, with special risks dominating the non-life business at 47.7% during 2021, and annuities contributing almost 70% to the life business.
GCR analysts said they do not expect a material deviation from this trend in the immediate term, particularly as there is a potential of absorbing the annuity business of another insurer, a gradual balancing of the premium mix might be seen over the long term as retail businesses gain traction in the insurer’s book.
The insurer company’s earnings are assessed within a moderately strong range, reflecting the moderation of sound operating margins by elevated volatility, it added.
Analysts said annuity premiums dominate the insurer’s business mix, adding that the company’s investment portfolio is tilted towards government bonds, which exposes profitability to some level of volatility.
Leadway reported a significant fair value loss due to the mark-to-market of investment securities precipitating a corresponding reserve release, with the distortive effect resulting in a typically high operating margin.
Notwithstanding, the company’s net profitability remained relatively stable on a year-on-year basis, supported by realised investment income and exchange gains. READ: GCR Upgrades NEM Insurance on Sustained Earnings Strength
Though GCR Rating recognised that market volatility may persist, as the firm expects realised investment income and adequate annuity products pricing to sustain profitability going forward.
For the rating, GCR said Leadway’s capital adequacy remains a positive factor. It explained that the insurer’s risk-adjusted capitalisation was maintained at a sound level in 2021, supported by strong internal capital generation.
“The GCR capital adequacy ratio was maintained at a sound level and evidenced good loss-absorbing capacity. In addition, statutory solvency remained strong at 2.3x, well above the regulatory minimum of 1x, albeit being a moderation from the prior position of 4.2x”.
The liquidity position remains within the intermediate range, GCR said in the report noting that cash and stressed financial assets coverage of net technical liabilities registered at 1.0x from 0.9x in 2020; supported by a conservative asset allocation.
The stable outlook reflects our expectation that the insurer will continue to defend its competitive position amidst rising competitive dynamics, without a material change to the business mix over the rating horizon, according to the rating note.
Earnings are expected to remain strong and continue to support capitalisation and liquidity at rating sufficient levels. #Leadway Assurance Gets Healthy Financial Rating, Stable Outlook
