Law Union & Rock gets BBB+ rating
GLOBAL Credit Ratings has affirmed the national scale claims paying ability rating assigned to Law Union and Rock Insurance Plc of BBB+(NG); with the outlook accorded as positive. The rating is valid until October 2016.
Global Credit Ratings (“GCR”) has accorded the above credit rating to the company based on the following key criteria: LUR introduced a new management team towards the end of 2014, in order to drive the insurer’s medium term strategic objectives. Thus, ability of the new team to sustain key credit metrics at current levels represents a key consideration over the rating horizon.
The insurer reflects strong risk adjusted capitalisation, following the clean-up of the debtors’ book, albeit capital appreciation in absolute terms remained constrained. The ratio of shareholders’ funds to net written premiums (“NWP”) remained strong, albeit contracting (FYE14: 137 per cent; FYE13: 159 per cent), on the back of sound gross premium growth. Furthermore, the statutory solvency ratio remained sound at 1.3x at FYE14 (FYE13: 1.2x).
Liquidity metrics improved over the last two years, supported by sound operating cash flow generation and the liquidation of property investments (of which the proceeds were largely invested in liquid instruments). As such, the two year average claims cash coverage ratio equated to a strong 28 months, compared to the prior two year average of 11 months. Similarly the average cash coverage of net technical liabilities equated to 1x, compared to 0.5x over the prior two years. GCR expects liquidity metrics to remain within a moderately strong range over the rating horizon, underpinned by management’s commitment to maintain the current investment allocations.
Earnings capacity is largely a function of the insurer’s investment portfolio (FYE14: N4.9 billion; FYE13: N4.1 bilion), which generates sound investment income. In this regard, the insurer’s underwriting profitability remained weak, underpinned by a certain degree of volatility in both the claims and operating expenses over the review period. As such, the insurer recorded an underwriting loss margin of 7% in FY14 (FY13: 6 per cent profit margin), although this position has been reversed to profitability as at September FY15.
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