Linkage Assurance gets A- rating
Nigeria’s first credit rating agency and pan African leader in credit reports, Agusto & Co. Limited has assigned an “A-” rating to Linkage Assurance Plc, based on their capitalisation, investment returns and liquidity profile.
The rating, which is underpinned by good capitalisation, good investment return and good liquidity profile, was assigned to the firm as an insurer with good financial condition and strong capacity to meet its obligations as and when due.
Linkage’s performance and liquidity position was supported by its investment in Stanbic IBTC Pensions Limited which accounted for 50 per cent of its investment portfolio.
However, the rating was constrained by elevated underwriting expenses, sub-par risk management, concentration in the investment portfolio and investment income, sub-par underwriting performance and the fragile state of the economy.
As at December 31, 2017, Linkage’s shareholders’ funds stood at N20 billion, significantly above the regulatory minimum for non-life insurers, while their retained earnings swung to positive territory on account of high profit retention rate, paving way for dividend payment and strengthened relationship with shareholders.
According to Agusto, money market securities which are highly liquid represented about 45.5 per cent of the firm’s investment portfolio as at 31 December 2017.
As at the same date, liquid assets accounted for 39.5 per cent of the total assets and covered outstanding claims 9.6 times.
During the financial year ended 31 December 2017, Linkage’s performance in the core insurance business was constrained by high underwriting expenses. As a result, underwriting profit margin plummeted to 0.1 per cent from 14 per cent in the prior year.
The Insurer’s investment income which was bolstered by dividend from Stanbic IBTC Pensions Limited which was accrued over the space of two years, augmented the impact of the high underwriting expenses on profitability.
Linkage also recorded post-tax return on average assets (ROA) and post-tax return on average equity (ROE) of 13.3 per cent and 15.8 per cent respectively.
“While we consider the Insurer’s profitability ratios to be good by industry standard, we are concerned about the vulnerability of income to dividend from an investee company. In the same vein, weak underwriting income remains a rating negative,” Agusto reports.
Meanwhile, the report revealed that the Nigerian insurance industry has contended with multiple challenges that was aggravated by the lingering macroeconomic slowdown, resulting to insurance penetration ratio going below 0.5 per cent and premium per capita being one of the lowest in Africa.
Nonetheless, in spite of growing confidence in insurance products, the appetite of Nigerians for insurance remains abysmal though potentials for the industry remain strong. Nigeria’s vast economy and population which is the largest in Africa if harnessed, could support the insurance industry.
Although the tier- based capitalisation policy has been cancelled, the capital raising exercise by some insurers will increase risk underwriting capacity and spur initiatives to deepen insurance in Nigeria.