Best’s News & Research Service - February 17, 2022 09:33 AM (EST)
AM Best Affirms Credit Ratings of Custodian and Allied Insurance Limited
- February 17, 2022 09:33 AM (EST)
London //BestWire// - AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Custodian and Allied Insurance Limited (CAIL) (Nigeria). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CAIL’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management.
CAIL’s balance sheet strength is underpinned by risk-adjusted capitalisation that is comfortably at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Capital consumption is primarily driven by asset risk, owing to the poor credit quality of debt issuers in Nigeria. The balance sheet strength assessment also considers CAIL’s high reinsurance dependence, driven by large cessions on energy and property risks, as well as its exposure to the high levels of economic, political and financial system risks that are associated with operating in Nigeria.
CAIL’s strong operating performance reflects its solid overall profitability and strong underwriting performance, as demonstrated by its five-year (2016-2020) weighted average combined ratio of 89%. The company’s earnings are skewed toward investment income as a result of its low underwriting leverage and the relatively high interest rate environment in Nigeria; investment income accounted for approximately 80% of the company’s pre-tax profits over the past five years. AM Best expects CAIL to report solid results again for 2021, with the company recording a pre-tax profit of NGN 4.2 billion (USD 13.5 million) for the first three quarters of 2021, a modest NGN 0.4 billion improvement against the same period in 2020.
CAIL has a strong position in Nigeria’s market as one of the leading non-life insurers, measured by gross written premium. However, Nigeria’s insurance market is of modest size by international standards and is subject to considerable political, economic and financial system risks, making it a challenging operating environment.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.