Yemisi Izuora
A.M. Best has affirmed the financial strength rating of B- (Fair) and the issuer credit rating of “bb-” of Wapic Insurance Plc, the operating holding company of the Wapic group of companies.
It insists that the outlook for both ratings is stable.
The ratings of Wapic reflect its developing business profile in the Nigerian insurance market, its high expense base that constrains its earnings prospects and its solid risk-adjusted capitalisation.
The ratings also consider Wapic’s exposure to Nigeria’s weakened economic conditions and the impact on the domestic insurance sector’s increasingly challenging operating environment.
Wapic is a small insurance group that has been operating under new management since 2013, following its divestment by Access Bank.
Wapic is a domestic non-life entity, which wholly owns a life insurer in Nigeria and a non-life insurer in Ghana.
The group reported consolidated gross written premiums of N5.0 billion (approximately $25.0 million) in 2014.
Under Wapic’s new business strategy, the group seeks to strengthen its competitive position by developing its profile within the corporate segment of the market and increasing its underwriting of compulsory lines, resulting in planned growth in excess of 25 percent per annum for the medium term.
The successful execution of Wapic’s strategy is largely dependent on the group enhancing its presence in the highly competitive markets of Nigeria and Ghana, competing with a number of larger and more established insurers.
The business plan also requires the company to invest in its distribution capabilities to support expansion.
Given the above factors, A.M. Best believes that Wapic is likely to face challenges in implementing its business plans, particularly in light of the current weakened economic conditions, and will continue to monitor the profitability associated with the company’s expansion.
Despite Wapic’s relatively low claims ratio, projected earnings are expected to be dampened by its substantial fixed costs as the group develops its operating infrastructure to support expansion.
For 2015, Wapic is expected to produce a combined ratio in excess of 100 percent, albeit lower than the 137 percent reported in 2014.
Although the company anticipates break-even results by 2016, Wapic will need to achieve significant scale in its operations to support meaningful contributions from its underwriting to overall earnings going forward.
A.M. Best expects Wapic’s risk-adjusted capitalisation to be maintained at a solid level, based on its performance forecasts and a policy of full earnings retention.
Wapic’s balance sheet strength is supported by a conservative investment portfolio consisting mainly of cash deposits and fixed income investments and a panel of predominantly highly rated reinsurers.