A global credit rating agency, AM Best has revised the outlook of AXA Mansard Insurance Plc from negative to stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of the firm.
The ratings reflect AXA Mansard’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The ratings also show rating enhancement from the AXA group. The revision in outlook to stable depicts AM Best’s expectations that AXA Mansard’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), will remain at the strongest level over the medium term.
According to the agency, this will help the insurer to benefit from the de-risking of its investment portfolio, while its underwriting performance will gradually improve.
“AXA Mansard’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by BCAR. Capital consumption is significantly influenced by the company’s real estate holdings, which in 2018 equated to 73 per cent of its capital and surplus”.
The rating agency also expects that AXA Mansard will significantly reduce its allocation to real estate over the medium term, which would have a positive impact on its future BCAR. The balance sheet strength assessment also considers AXA Mansard’s exposure to the high levels of economic, political and financial system risks that are associated with operating in Nigeria.
“It’s overall operating performance has been driven by its investment results in recent years, and the company’s five-year (2014-2018) weighted average return on equity of 10 per cent should be viewed in light of inflation in Nigeria, which has ranged between eight per cent and 17 per cent over the same period.
“Underwriting performance has been modest, with the company reporting a five-year average non-life combined ratio of 107 per cent, impacted by its high but declining expense ratio, which fell to 39 per cent in 2018 from 54 per cent in 2014. Although a rapidly growing health insurance portfolio is negatively impacting the company’s loss ratio, it has been profitable for the company due to its low expense ratio”, the report noted.
Over the medium term, AM Best expects growth of the health book of business to improve the company’s technical results.