AM Best has downgraded the Long-Term Issuer Credit Rating to b from b+ and affirmed the Financial Strength Rating of C++ (Marginal) of Wapic Insurance Plc (Wapic) (Nigeria), the operating holding company of the Wapic group of companies. The outlooks of these Credit Ratings (ratings) have been revised to negative from stable.
The ratings reflect Wapics balance sheet strength, which AM Best categorises as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The rating downgrade reflects AM Bests view that Wapics risk-adjusted capitalisation, as measured by Bests Capital Adequacy Ratio (BCAR), has declined materially through 2017 and 2018, largely due to the groups increasing investment and underwriting risk profile. In 2016, Wapic increased its stake in Coronation Merchant Bank Limited (CMBL), an affiliated private financial institution. At Sept. 30, 2018, CMBL accounted for 51% of Wapics consolidated shareholders funds (34% on a non-consolidated basis).
The negative outlook reflects AM Bests concern that risk-adjusted capitalisation may further deteriorate over the medium term due to the potential growth of the companys underwriting and investment risk profile in excess of its ability to generate equity capital. For the first nine months of 2018, Wapic reported a 29% growth in net written premium compared to the same period in the prior year, while capital remained broadly unchanged. Furthermore, failure to improve underwriting performance would add further downward pressure on the rating.
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Wapics underwriting results have been volatile and poor, as demonstrated by the companys five-year average (2013-2017) non-life combined ratio of 167% (as calculated by AM Best). Wapics underwriting result remains heavily influenced by its expense ratio, which continues to be driven by high management and commission expenses. Partially mitigating the poor underwriting performance is Wapics investment income, which returned a 15% yield in 2017.
Wapic is a mid-sized insurance group within its domestic market, ranked 8th in 2017 by gross written premiums with a 4% market share. The group is reliant on brokers for its distribution, and its profile is concentrated in Nigeria, which exposes Wapic to significant economic and financial system risks.
This press release relates to Credit Ratings that have been published on AM Bests 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 Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Bests Credit Ratings. For information on the proper media use of Bests Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Bests Credit Ratings and AM Best Rating Action Press Releases.
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