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Insurers get stable outlook rating for performance

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The ongoing recapitalisation exercise in the insurance sector may be getting the required boost as insurers record improved rating outlook by global agencies. A global credit rating agency, with over 100 years history of providing quantitative and qualitative assessment for insurance companies, AM Best, spotted improved performance of Nigerian insurers.

Specifically, it revised an outlook to stable from negative and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of AXA Mansard Insurance Plc. The ratings reflect AXA Mansard’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The ratings also reflect rating enhancement from the AXA group. The revision in outlook to stable shows AM Best’s expectations that AXA Mansard’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), will remain at the strongest level over the medium term.The is will help it to benefit from the de-risking of its investment portfolio, while the company’s underwriting performance will gradually improve.

AXA Mansard’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by BCAR. Capital consumption is significantly influenced by the company’s real estate holdings, which in 2018 equated to 73 percent of its capital and surplus.

However, the rating agency also expects that AXA Mansard will significantly reduce its allocation to real estate over the medium term, which would have a positive impact on its future BCAR. The balance sheet strength assessment also considers AXA Mansard’s exposure to the high levels of economic, political and financial system risks that are associated with operating in Nigeria.

It’s overall operating performance has been driven by its investment results in recent years, and the company’s five-year (2014-2018) weighted average return on equity of 10 percent should be viewed in light of inflation in Nigeria, which has ranged between eight percent and 17 percent over the same period.

Underwriting performance has been modest, with the company reporting a five-year average non-life combined ratio of 107 percent, impacted by its high but declining expense ratio, which fell to 39 percent in 2018 from 54 percent in 2014. Although a rapidly growing health insurance portfolio is negatively impacting the company’s loss ratio, it has been profitable for the company due to its low expense ratio.

Over the medium term, AM Best expects growth of the health book of business to improve the company’s technical results.AXA is a composite insurer concentrated in the Nigerian market, with aggressive growth strategy within the health insurance line, which in 2018, led it to become a market leader in this segment. With support from the AXA group, the company continues to take positive steps to improve and embed risk management throughout its operations, and AM Best expects the company to continue to evolve its risk management capabilities.

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AXA Mansard Insurance Plc
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