Rating agency, A.M. Best has affirmed the Financial Strength Rating, FSR of B, Fair, and the Long-Term Issuer Credit Rating, Long-Term ICR, of “bb” of Nigeria’s Custodian and Allied Insurance Limited, CAI.
The outlook of the FSR remains stable whilst the outlook for the Long-Term ICR remains positive.
CAI is the wholly-owned non-life subsidiary of Custodian and Allied Plc, the ultimate parent of the Custodian group of companies.
The positive outlook on the ICR reflects CAI’s ability to continue generating solid technical results, in spite of the economic challenges affecting its domestic market, whilst sustaining risk-adjusted capitalisation at strong level.
The rating action also reflects the benefit of the Custodian group’s enhanced business profile and strengthened risk management.
CAI’s risk-adjusted capitalisation is expected to remain at a strong level, supported by retained earnings. The company has demonstrated a track record of generating a return on equity in excess of 20 percent over the past five years.
Additionally, ongoing development of CAI’s risk management framework is expected to be a positive factor in sustaining the company’s balance sheet strength.
In particular, the company’s internal risk-based capital model is anticipated to support its reinsurance placements, as well as its strategic decisions, allowing the company to implement a capital management policy that supports its risk profile.
CAI’s strong technical performance has benefited from cost synergies arising from the integration of the Custodian group’s operations, following its acquisition of Crusader (Nigeria) Plc in 2012, as well as management efforts to cleanse its insurance portfolio.
This was demonstrated by the material improvement in the combined ratio to 63 percent for the first nine months of 2016, compared to the 76 percent reported in the same prior year period.
Although Nigeria’s difficult economic conditions represent a major obstacle for CAI going forward, A.M. Best believes the associated risks may be partly mitigated by the company’s solid business profile, which should support its ability to attract good quality risks and hence sustain its technical earnings.