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Chuks Udo Okonta
AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” of Custodian and Allied Insurance Limited (CAI) (Nigeria). The outlook of these Credit Ratings (ratings) is 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).
CAI’s balance sheet strength is underpinned by its 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 non-investment grade investments, and its high 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. AM Best expects the ongoing development of CAI’s ERM framework 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 in areas such as reinsurance placement and capital management.
CAI has a leading market position within its domestic market; however, its business profile is limited to Nigeria. The company has a track record of strong technical and overall profitability, as illustrated by a five-year average (2014-2018) combined ratio and return on equity of 87.6% and 23.6% (as calculated by AM Best), respectively. Over the past three years, the company has benefited from significant foreign exchange gains related to the devaluation of the Nigerian Naira against the US Dollar, as it holds approximately two-thirds of its liquid assets in foreign currencies. AM Best expects the return in 2019 to remain robust, helped by a reduction in the loss ratio.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data provider specialising in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.