A.M. Best Affirms Ratings of Leadway Assurance Company Limited
LONDON, 15 September 2011—A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of B- (Fair) and the issuer credit rating “bb-” of Leadway Assurance Company Limited (Leadway) (Nigeria). The outlook for both ratings remains stable.
The rating actions reflect Leadway’s adequate risk-adjusted capitalisation, improved operating performance and its good business profile in the Nigerian market.
In A.M. Best’s opinion, Leadway’s prospective risk-adjusted capitalisation is expected to remain volatile, but adequate and support the company’s business plan. Leadway’s capitalisation decreased by 36% between 2007 and 2008 as a result of large unrealised losses on equity investments and higher retained business volume. This trend was reversed in 2010 when capital levels improved following a capital increase from NGN 2.7 billion (USD 18 million) to NGN 4.1 billion (USD 26 million) and higher transfers to equalization reserves. A.M. Best’s viewpoint is the volatile capital position partly reflects the higher risk profile of the company’s investment portfolio. Leadway’s investment strategy is expected to become moderately more conservative in 2011-2012; however, A.M. Best believes the risk-adjusted capitalisation will remain exposed to volatile equity markets going forward, while remaining within the tolerance levels of the current ratings.
Leadway’s financial performance improved in 2010, with net income after taxes increasing by 42% to NGN 1.4 billion (USD 8.9 million) mainly driven by an improvement in non-life technical income, which
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increased by 6% to NGN 4.34 billion (USD 27.6 million), while the life segment posted a loss of NGN 48 million (USD 0.3 million). Overall, return on equity improved to 11% in 2010 (8%: 2009). However, the company’s non-technical account was still impacted by large unrealised investment losses and bad debt provisions. In A.M. Best’s opinion, Leadway’s net income after tax is likely to increase to NGN 1.5-2 billion (USD 10-13 million) in the next two years primarily driven by an improved technical performance in both segments. Nevertheless, A.M. Best believes that Leadway’s investment performance is likely to remain subdued in 2011, due to the company’s significant equity holdings, which included approximately NGN 3.2 billion (USD 20 million) in unquoted securities as at year-end 2010.
Leadway benefits from a good business profile in non-life retail lines in the Nigerian market and in the larger commercial risks, as well as benefitting from a growing life insurance book. In 2010, the company’s total gross premiums decreased by 37.7% to NGN 16.8 billion (USD 106 million) following softer rates in most lines of business in Nigeria, difficult economic conditions and a decrease in Leadway’s share of special risk business, which primarily covers construction, property and liability risks related to the oil and gas industry. Nonetheless, the life business performed better with premiums increasing by 21% to NGN 2.6 billion (USD 16.2 million) in 2010. Prospectively, Leadway is likely to experience a good increase in gross premiums in 2011 due to higher anticipated business volumes, especially in the life segment.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; and “Natural Catastrophe Stress Test Methodology”. Methodologies can be found at www.ambest.com/ratings/methodology.
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 In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures, A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
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