LONDON--(BUSINESS WIRE)--AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb+” from “bb” and affirmed the Financial Strength Rating (FSR) of B (Fair) of Custodian and Allied Insurance Limited (CAI) (Nigeria). The outlook of the Long-Term ICR has been revised to stable from positive while the FSR outlook remains stable. CAI is the wholly owned non-life subsidiary of Custodian Investment Plc.
The ratings reflect CAI’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management (ERM).
The Long-Term ICR upgrade reflects CAI’s resilient operating performance in a highly competitive operating environment, as evidenced by its five-year combined ratio of 88.5%. Technical performance remained strong in 2017, with the company generating a combined ratio of 81.5% (as calculated by A.M Best). The volatility of underwriting results in recent years, largely driven by the devaluation of the Nigerian Naira against stronger foreign currencies, is a partially offsetting factor.
The company generated an average return on equity of 24% over the past five years (2013-2017), bolstered by foreign exchange gains. AM Best expects prospective earnings to remain robust, although likely at a lower level in the absence of major foreign exchange gains.
CAI’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and a prudent dividend policy. Partially offsetting these balance sheet factors is the quality of CAI’s assets, which are mainly restricted to Nigeria, and its moderate dependence on reinsurance. The ratings also factor in the company’s exposure to high levels of economic risk, and very high levels of political and financial system risk associated with operating exclusively in Nigeria. The ongoing development of CAI’s ERM 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 has started to support strategic decision making, such as reinsurance placements and capital management policy.
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