The rating assigned to Anchor Insurance Limited (‘Anchor’ or ‘the Insurer’) reflects its good profitability, decent investment management, good liquidity, moderate exposure to underwriting risks as well as an experienced management team. However, the rating is constrained by the Insurer’s low profitability, elevated underwriting expenses, and the dampening effects of macroeconomic uncertainties that have impacted the Insurer’s financial performance.
The Insurance industry’s performance has remained constrained by weak macroeconomic conditions, a reduction in the purchasing power of consumers and the sustained apathy for insurance, amongst others. Given the Industry’s low penetration ratio of approximately 0.5% in Nigeria, a strong focus on innovation around products and distribution channels is required in addition to creating awareness amongst consumers. These will collectively serve as key growth drivers for the industry in the short to medium term.
The recent suspension of the implementation of the Tier based minimum solvency capital (TBSMC) by NAICOM provides a lifeline for industry operators, which we expect should give operators time to finalise capital raising plans and build capacity to underwrite risks. Nonetheless, the current weak investor sentiments towards Nigeria and the emerging political risks stemming from ongoing election campaigns may impede capital raising plans in the short term.
In the interim, Agusto & Co. expects industry operators to continue to strengthen capabilities in risk management, minimize underwriting expenses, and strengthen investment management to support profitability while contending with muted investment returns due to limited asset allocation and low interest rates.