Leadway Assurance Sees Rating Upgrade on Better Financial Strength
Leadway Assurance Company’s local financial strength rating -formerly claim paying ability- has been upgraded to AA from AA-, GCR Ratings said in the latest report on the company.
The outlook has been maintained on stable, the ratings firm added, noting that the top tier insurance player within the Nigerian insurance industry national scale financial strength rating reflects its strong financial profile, complementing an intermediate business profile.
While the insurer’s financial profile was boosted by strong capitalisation, earnings and liquidity metrics were somewhat constrained over the review period, it added.
The business profile is considered to be intermediate, with competitive strength counterbalanced by limited premium diversification.
However, GCR analysts noted the significant loss of market share in 2020 due to the slowdown in annuity uptake during the year, which led to a notable reduction of 41% in gross written premium.
Leadway Assurance company controlled an estimated market share and relative market share of about 9.1% and 5.4x respectively in 2020 based on the total gross written premium of the industry, it said.
“Our positive view on the insurer’s competitive position is constrained by concentration of the premium base in both the life and non-life business, having special risk dominate the non-life business at over 50% contribution during 2020, and annuity contributing almost 70% to the life business”.
Going forward, GCR expects a gradual balancing of the premium mix, given several strategic retail initiatives being put in place by management. It noted the company’s earnings are at an intermediate level, with net profit supported by market-sensitive income.
In this regard, profitability in 2020 is underpinned by investment income and the highly volatile foreign exchange gains. Notwithstanding the low yield environment in 2020, Leadway’s financials shows that investment income grew by 35.1% year on year, with growth supported by profit on the sale of investment securities.
However, given the increase in net claims and reserves during the year, the operating margin moderated by about 150 basis points to 4.9% in 2020.
GCR also sees Leadway’s capital adequacy as a positive rating factor.
It said risk-adjusted capitalisation is assessed within a sound range, with the GCR capital adequacy ratio and international solvency margin registering at 4.7x and 185.1% respectively at 2020 from 3.0x and 73.9% respectively in 2019, evidencing good loss-absorbing capacity.
The ratings firm indicated that from a statutory solvency perspective, the insurer’s solvency margin improved to 9.8x at 2020 from 4.3x in 2019, against the regulatory minimum of 1x.
Going forward, consistent earnings generation and retention could continue to underpin internal capital build, with the GCR CAR expected to be maintained at a sound level over the rating horizon, the firm said. Liquidity was measured at an intermediate level, supported by a sizeable investment portfolio and conservative asset allocation.
Leadway’s asset-liability matching is considered sound, with maturities of assets and policyholders’ obligations largely matched having over 80% held in risk-free Federal Government of Nigeria bonds, according to the rating report.
Accordingly, cash and stressed financial assets coverage of net technical obligations registered above 1x at 2020, while coverage of operational cash requirements was around 9 months.
GCR also said the Assurance Company’s stable outlook reflects an expectation that it will continue to defend its competitive position despite the increasing competitive dynamics.
“We expect the insurer’s retail growth strategy to gradually improve premium diversification and earnings capacity. We also anticipate persistent internal capital generation to support capital growth”, GCR stated. #Leadway Assurance Sees Rating Upgrade on Better Financial Strength