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Unrated insurance companies shut out of oil and gas business

Henceforth, only rated insurance companies will be considered for oil and gas insurance businesses, as part of an agreement between the Federal Government and multi-national oil companies.

According to the agreement, only insurance companies rated by reputable rating agencies would be allowed to write oil and gas insurance business

Investigations revealed that this requirement has compelled a number of insurance companies in the country to submit themselves for rating whilst those which had been rated before have gone for another round of rating.

These include Leadway Assurance, Custodian & Allied Insurance, Sovereign Trust Insurance, Crusader Insurance, NEM Insurance, Guarantee Trust Assurance, International Energy Insurance, Continental Re Plc and Africa Reinsurance Corporation, amongst others.

Generally, rating is a system of assigning letters to security issues indicating the perceived default risk associated with that class of issues.Ratings are used by investors, issuers, investment banks, broker_dealers and governments.

For investors, credit rating agencies increase the range of investment alternatives and provide independent, easy_to_use measurements of relative credit risk; this generally increases the efficiency of the market, lowering costs for both borrowers and lenders.

This, in turn, increases the total supply of risk capital in the economy, leading to stronger growth. It also opens the capital markets to categories of borrowers who might otherwise be shut out altogether. Ratings are also used for other regulatory purposes and to measure the strength of the reserves held by insurance companies.


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