LONDON: AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” of Nigeria based Custodian and Allied Insurance Limited (CAI), a wholly owned non-life subsidiary of Custodian Investment Plc.
The outlook of these ratings is stable. 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). Partially offsetting factors include CAI’s high-risk investment portfolio, with a significant exposure to non-investment grade bonds, and its high dependence on reinsurance.
The ratings also factor in the company’s exposure to the 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 supports strategic decision making in areas such as reinsurance placement and capital management.
CAI has a track record of strong underwriting and overall profitability, as illustrated by a five-year weighted average (2015-2019) combined ratio and return on equity of 85.0% and 22.1% (as calculated by AM Best), respectively. In recent years, the company has benefited from significant foreign exchange gains related to the devaluation of the Nigerian Naira against the U.S. dollar, as it holds approximately two-thirds of its liquid assets in foreign currencies.
CAI has a leading position within its domestic market. Nonetheless, its business profile assessment is limited, reflecting its concentration in Nigeria.