Dipo Olowookere
By Dipo Olowookere
Global Credit Ratings has upgraded the national scale claims paying ability rating of NEM Insurance Plc to A(NG) from A-(NG), with the outlook accorded as Stable.
A statement issued by GCR explained that the rating, which remains valid until June 2019, was accorded based on the fact that NEM’s risk adjusted capitalisation is considered to be strong, supported by a sizeable capital base catering for the quantum of insurance and market risk exposures.
In this regard, the ratio of shareholders’ funds to net earned premium (NEP) rose to a review period high of 99.5 percent at FY17.
Sound internal capital generation and relatively well contained dividend distributions are likely to maintain risk adjusted capital adequacy within a strong range over the rating horizon.
Key liquidity metrics remained at strong levels, with cash coverage of technical provisions registering at 1x (FY16: 0.9x), while the average monthly claims cash cover ratio equated to 44 months at FY17 (FY16: 24 months).
GCR said it expects liquidity metrics to remain within a strong range going forward, supported by robust operating cash flow generation and conservative asset allocation.
Sound competitive positioning is supported by the insurer’s entrenched position in the market, with NEM holding an estimated 5.5 percent of total short term industry premiums in FY17.
Strong brand visibility, coupled with established broker relations is expected to provide continued premium generative capacity, with the insurer likely to defend its current market position, the rating firm explained.
It added that earnings capacity has been supported by consistent realised investment returns, although large fluctuations in underwriting results and fair value movements have induced a degree of margin volatility across the review period.
“While note is taken of the stabilisation in underwriting margins over the past two years (FY17: 16 percent; FY16: 13 percent), earnings capacity might remain volatile over the medium term, underpinned by variable claims patterns and fair value movements.
“The reinsurance programme reflects a moderately high level of counterparty strength, while maximum net retention per risk and event equated to a moderate 3.1 percent of FY17 capital (using the 2017 closing exchange rate).
“Upward rating movement could follow strengthening of the insurer’s business profile supported by strong credit protection metrics. However, the rating will be sensitive to a sustained deterioration in key credit protection metrics and/or sustained weakness in operating performance,” GCR said.
