GCR Affirms and Revises WAICA Reinsurance Ratings | Outlooks Stable

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23 July 2021 – GCR Ratings (GCR) has affirmed WAICA Reinsurance Corporation Plc’s (WAICA Re) international scale financial strength rating of ‘B+’, with a Stable Outlook. At the same time, GCR revises the Nigerian national scale financial strength rating to ‘AAA’(NG), on criteria change with a Stable Outlook.

Ratings History – WAICA Reinsurance Corporation Plc

Rating classReviewRating scaleRating classOutlookDate
Claims paying abilityInitialNationalA-(NG)PositiveNovember 2015
LastNationalA+(NG)StableDecember 2019
Claims paying abilityInitialInternationalB+StableNovember 2015
LastInternationalB+StableDecember 2019

Rating Rationale

The ratings of WAICA Re are underpinned by a good presence within the anglophone West Africa region. The reinsurer’s business profile is moderately strong, bolstered by strong business acquisition and continuous diversification into other markets across Africa. WAICA Re maintained sound solvency levels and healthy earnings resilience, albeit with liquidity moderating to an intermediate-range, and displayed sensitivity to further premium growth.

Competitive position is supported by WAICA Re’s good franchise in its core markets (Nigeria and Ghana, collectively contributing over 50% of the gross premiums), with an upward growth trajectory in other markets including francophone West Africa, Tunisia, and most recently Kenya and Zimbabwe.

GCR Affirms and Revises WAICA Reinsurance Ratings | Outlooks Stable
GCR Affirms and Revises WAICA Reinsurance Ratings | Outlooks Stable

GCR expects its competitive position to improve over the medium term as the reinsurer begins to build traction in some of its new markets. Management and governance are neutral as it is considered to be in line with best practice.

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Earnings capacity is considered strong, underpinned by a demonstrated track record of sound underwriting and net profitability margins amidst high premium growth. Despite higher operating costs and claims pay-outs in FY20, the significant increase in business growth provided the reinsurer with higher loss-absorbing capacity during the year.

Going forward, GCR expects earnings to remain sound, though may taper down over the medium to long-term as the reinsurer begins to consolidate its growth in some of its new market.

WAICA Re’s capital adequacy is a positive rating factor. Total capital equated to USD98.2m at year-end 2020 (FY19: USD89.4m) on the back of consistent internal capital generations. Similarly, both the international solvency and GCR capital adequacy ratio (“CAR”) were maintained well above 100% and 2.5x respectively over the review period, evidencing good loss-absorbing capacity.

The reinsurer plans to increase its capital to USD100m (FY20: USD98.2m) over the medium term to support its planned business growth and expansion. This could be supportive to the rating should it be successfully implemented with evidence of good capital management structures.

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Due to strong growth during the review year, liquidity metrics moderated, with cash coverage of technical liabilities declining to 1.4x from a historical average of above 2x. Similarly, operational cash coverage was measured at an average of 18.2 months at FY20 (FY19: 17.9 months). Going forward, the management of liquidity within a rating adequate range represents a key consideration.

Outlook Statement

The Stable Outlook reflects our expectation that WAICA Re will maintain a stronghold in its core markets while growing its market share in other jurisdictions. Despite the significant jump in business scale and the attached increasing liabilities, GCR expects liquidity to return to the pre-FY20 position over the next 12-18 months on the back of the reinsurer’s sound internal liquidity management.

We expect earnings generation to remain consistent with historical trends and as such, support risk-adjusted capitalisation within the current range.

Rating Triggers

While the national scale rating is currently at its highest level, upward movement in the international scale rating is considered unlikely over the medium term but could come around with a material increase in scale, alongside positive diversification and better liquidity.

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Conversely, the inability to translate the strengthened business profile into improved liquidity metrics, as well as exposure to group risks could result in a downward revision of the ratings.

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