Ratings Recap: Compania Internacional (CIS), Leadway

A.M. Best Co. has upgraded the financial strength rating to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit rating to “a” from “a-” of Panama’s Compania Internacional de Seguros, S.A. (CIS), both with stable outlooks. “The rating upgrades are based on CIS’ historical operating performance, excellent risk-based capitalization and strong market profile,” Best explained. “As one of the largest insurers in Panama, CIS utilizes its solid risk management procedures and local market expertise to enhance its operating performance. Strong underwriting results are complemented by consistent levels of investment income derived from a conservative investment portfolio. These factors have allowed CIS to enhance its surplus considerably in recent years.” Best also said, “from an underwriting perspective, both property/casualty and life/health business segments have been generally profitable in recent years. CIS also maintains liquidity and solvency margins in excess of the requirement of the Panamanian Superintendent of Insurance.” As partial offsetting factors Best cited “the challenges CIS faces operating in a relatively limited and competitive insurance market, as well as in a country that A.M. Best considers to have an elevated level of country risk.” Best added that while it “considers CIS well positioned at its current rating level, factors that may lead to negative rating actions include protracted adverse underwriting and overall performance, a significant deterioration in its risk-adjusted capitalization or a downgrade in the Panama country risk tier rating.”

A.M. Best Europe – Rating Services Ltd. has affirmed the financial strength rating of ‘B-‘ (Fair) and issuer credit rating of “bb-” of Nigeria’s Leadway Assurance Company Limited; however, Best’s outlook on both of the ratings remains negative. Best then indicated that the ratings have been withdraw by mutual consent. Best said the rating affirmations “reflect Leadway’s strong business profile as a composite insurer within its local market and its positive operating performance. The ratings also consider the company’s exposure to the high country risk associated with its operations in Nigeria.” Best noted that “while operating performance has been supported by solid technical results, overall earnings have been consistently dampened by sizeable amounts of impairments and provisions for bad and doubtful debts in relation to the collection of outstanding premium debtors.” Best added that it “does not expect the negative impact of these provisions on Leadway’s financial results to change in the medium term. Leadway’s consolidated risk-adjusted capitalization remains at a marginal level. This follows the deterioration in consolidated capital and surplus position at year-end 2011, due to the erosion in its equity revaluation reserves as a result of volatility in the capital markets. Although the level of equity investments has been reducing in the last few years, quoted and unquoted shares still account for a material portion of Leadway’s portfolio, representing approximately 35 percent of total investments at year-end 2012 (2011: 41 percent, 2010: 46 percent).” Best also indicated that, “despite a moderate improvement in risk-adjusted capitalization (on a standalone basis) at year-end 2012, following a recovery in equity market conditions,” it considers “the margins incorporated within Leadway’s risk-adjusted capitalization to be at a low level.” Best also explained that the negative outlook on the ratings “continues to reflect the on-going uncertainty associated with Leadway’s investment risk appetite and growth plans, and the subsequent impact on risk-adjusted capitalization.” Best said it “anticipates significant growth in premium volumes in the near term, following increases of approximately 45 percent and 55 percent in 2011 and 2012 respectively, as the company seeks to capitalize on the expanding life market and to grow within the oil and gas sector. Leadway’s risk-adjusted capitalization is likely to remain under pressure due to the volatile domestic capital markets and its aggressive growth plans.”