A.M. Best has revised the outlook for the issuer credit rating (ICR) to positive from stable and affirmed the financial strength rating (FSR) of B (Fair) and the ICR of “bb” of Custodian and Allied Insurance Limited (CAI) (Nigeria). The outlook for the FSR remains stable. CAI is the wholly-owned non-life subsidiary of Custodian and Allied Plc.
The positive outlook reflects CAI’s strong risk-adjusted capitalisation, enhanced business profile and strengthened risk management. The ratings also consider the company’s solid technical performance. A partly offsetting rating factor relates to the weakened economic conditions in Nigeria and the impact on the domestic insurance sector’s increasingly challenging operating environment.
CAI’s risk-adjusted capitalisation is maintained at a strong level, supported by retained earnings. However, some erosion is likely in the near term due to rapid growth in premium volumes as the company takes advantage of its enhanced competitive profile in the domestic market. Nonetheless, CAI’s risk-adjusted capitalisation is expected to remain supportive of its current rating level, underpinned by robust earnings, with a return on equity in excess of 20% expected in the near term. The company’s balance sheet strength is expected to be supported by the ongoing development of its risk management framework. In particular, the utilisation of an internal risk-based capital model is expected to support CAI’s strategic decisions going forward, as well as its reinsurance purchasing policy.
CAI’s business profile remains solid and has benefited from an enhanced competitive position, particularly within the retail segment of the market, following the acquisition of the Nigerian financial services group, Crusader (Nigeria) Plc (Crusader) in 2012.
CAI’s solid technical performance has benefited from the cost synergies through the merger of the group’s operations, as demonstrated in the improved combined ratio of 95% in 2014, from 98% in the previous year. However, the company continues to be impacted by a rising loss ratio, owing to an increase in the value of attritional claims. In light of the current weakened economic conditions, CAI face challenges in executing its business plans and maintaining solid technical performance in the near term.
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