A.M. Best has assigned a financial strength rating (FSR) of B (Fair) and an issuer credit rating (ICR) of “bb” to Custodian and Allied Insurance Limited (CAI) (Nigeria). The outlook assigned to the ratings is stable. CAI is the wholly-owned non-life subsidiary of Custodian and Allied Plc (CAP) (Nigeria). CAP’s (previously known as Custodian and Allied Insurance plc – the former operating parent) role was redefined in 2014 as the non-operating holding company of the Custodian group of companies.
Concurrently, A.M. Best has withdrawn the FSR of B (Fair) and the ICR of “bb” of Custodian and Allied Insurance plc. The ratings have been withdrawn due to the change in the organisational structure of the Custodian group.
The merger of CAP with Crusader (Nigeria) Plc (Crusader) in 2013, a financial services group writing both insurance and pension business in Nigeria, resulted in a reorganisation of the Custodian group. In addition to CAP becoming the new non-operating parent of the newly formed organisation, CAP’s general insurance business was transferred to CAI, which held the non-life operation of Crusader General Insurance Ltd, the former wholly-owned subsidiary of Crusader. CAI is the largest insurance entity within the group, representing approximately 90% of consolidated gross written premiums. The group also includes subsidiaries relating to life, pensions and trustee business.
The assigned ratings on CAI reflect its solid risk-adjusted capitalisation, adequate operating performance and strengthened competitive profile, following the merger with Crusader. A negative rating factor is the company’s underdeveloped risk management framework.
CAI’s risk-adjusted capitalisation is maintained at a solid level, although some erosion is anticipated in 2014 due to rapid growth in premium volumes as the company takes advantage of its enhanced profile in the domestic market. Despite CAI’s expansion plans, the company’s risk-adjusted capitalisation is expected to remain supportive of its current rating level, underpinned by robust earnings derived from its improving technical earnings and solid investment returns. The company’s return on equity is expected to remain strong, in excess of 20% in the near term.
CAI’s general insurance strategy remains unchanged following the merger, with growth targeted within the retail segment of the market. The company has historically maintained a good competitive profile, primarily operating in the commercial sector. The acquisition of Crusader allows CAI to benefit from the former’s established profile in the retail segment of the market. Gross premium volumes are expected to increase annually by approximately 20% in the near term. Given the company’s underdeveloped risk management framework, A.M. Best considers there to be material risk associated with its rapid growth plans.
Positive rating actions could occur if CAI demonstrates strong technical earnings and maintains risk-adjusted capitalisation at a supportive level, whilst demonstrating developments to its risk management framework.
Any deterioration in CAI’s operating performance or significant erosion in its risk-adjusted capitalisation could place negative pressure on the ratings. A decline in Nigeria’s economic fundamentals could also negatively affect the company’s ratings.
Source: A.M. Best