A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of B (Fair) and issuer credit rating of “bb+” of Mansard Insurance Plc (Mansard) (Nigeria). The outlook for both ratings remains stable.
The ratings of Mansard reflect its supportive risk-adjusted capitalisation, strong underwriting performance and solid competitive position. A negative rating factor is the company’s investment strategy, which supports large holdings of property and land. The ratings of Mansard also consider the unstable political and economic environment in Nigeria.
Mansard’s consolidated risk-adjusted capitalisation is maintained at a strong level, albeit constrained by its investment strategy. Based on unaudited accounts as at the third quarter of 2013, around 22% of the company’s total investments are in land and property, which are held mainly for the purpose of development and sale, with the remainder invested predominantly in fixed income and money market securities. Although the company has made efforts to reduce its property exposure in recent years, A.M. Best considers Mansard’s investment strategy to remain a material source of risk, owing to the illiquid and volatile nature of this asset class.
Mansard’s operating performance remains at a solid level, with a return on equity of 11.6% in 2012 (compared with 7.2% in 2011). As at the third quarter of 2013, pre-tax profits increased to NGN 2.1 billion (third quarter of 2012: NGN 1.3 billion), due to better claims experience and higher investment results. Despite the rapid growth in premium volumes in recent years, Mansard continues to produce strong technical results, as demonstrated by its five-year average combined ratio of 65.7%.
Mansard’s solid competitive position as a top five composite insurer in Nigeria has been unaffected to date by its rebranding in 2012. The rebranding occurred due to its acquisition by Assur Africa Holding Limited in the previous year. Mansard continues to demonstrate excellent levels of business retention with no change in its strategy to expand further into the retail segment of the market. The company has developed a wide and effective distribution network, partly supported by its bancassurance agreement with several high profile financial institutions in Nigeria.
Positive rating actions could occur if Mansard maintains its strong earnings profile as it expands, whilst sustaining risk-adjusted capitalisation at a supportive level. These drivers will be monitored by A.M. Best over the medium to longer term.
A rise in the risk profile of Mansard’s investment strategy or a decline in its operating performance and risk-adjusted capitalisation to levels unsupportive of its current ratings could result in negative rating actions. Additionally, an impact on Mansard’s rating fundamentals due to a decline in the economic conditions in Nigeria could also negatively affect Mansard’s ratings.
