GCR Ratings (GCR) has affirmed Sovereign Trust Insurance Plc’s (STI) national scale financial strength rating of A(NG), with a Stable Outlook.
It said the latest rating reflects its good financial profile, underpinned by high levels of risk-adjusted capitalisation, robust liquidity, and sustained earnings base.
Explaining the rationale behind the rating, it these factors are counterbalanced by the Insurer’s limited competitive position and gross premium concentration in the oil and gas product class.
It said: “STI’s business profile is assessed within an intermediate range, reflective of its position as a mid-tier general insurer in the Nigerian Insurance sector, with an estimated market share of 2.1% as at December 2021.
“Further supporting the competitiveness is the Insurer’s long track record, leveraging technology for product innovation and growth which has deepened its retail penetration over time.”
Nonetheless, it said, concentration is noted in the premium base, with the oil and gas business line accounting for cumulatively 35% of gross written premium in the 2021 financial year as against 36% in 2020.
“Over the outlook horizon, we expect the business mix to be maintained,” GDR Ratings stated.
It added that the insurer’s earnings are measured at a similar level as the prior year, albeit with a slight improvement in 2021.
“The driver was mainly the turnaround in claims experience which supported an improvement in the combined ratio to 91.8% in 2021 relative to 95.3% in 2021, while underwriting profit increased by about 90% to N539 million compared with N309 million in 2020.
However, it said realised investment income was volatile during the year because of lower yields on the investment portfolio, foreign exchange losses, and a spike in interest expense on borrowings.
Therefore, the total yield of the investment portfolio registered a significant decline to 5.4% in FY21 from 10.6% in FY20. Overall, STI’s return on revenue moderately increased to 13% from 10.8% in FY20, according to GCR.
“We expect the insurer’s combined ratio to remain between 91%-95% over the next 12-18 months, supported by good underwriting and scale efficiencies, coupled with an improved investment result from higher yields on the investment portfolio”
