Ikeoye Oyetoro

A.M. Best has downgraded the issuer credit rating of  Nigeria’s International Energy Insurance plc (IEI) to “b” from “b+” and affirmed its  financial strength rating of ‘C++” (Marginal), citing symptoms of poor corporate governance.

A.M. Best is a global full-service credit rating agency dedicated to serving the insurance industry and it began assigning credit ratings in 1906, making it the first of today’s rating agencies to use symbols to differentiate the relative creditworthiness of companies.

Best said the downgrade of IEI  reflects weak internal controls and risk management saying the under review status reflects uncertainties over the future divestment from subsidiary companies as offsetting this is a fair level of risk-adjusted capitalization.”

AM Best noted that in 2009,  IEI suffered a consolidated loss after tax of NGN 3.9 billion ($25.4 million). The loss was driven by a weak underwriting performance after taking into consideration management expenses, losses within non_insurance subsidiaries and other non_technical expenses

Best said it considers IEI’s level of risk management as poor saying the company does not employ any formalized modeling tools, and reserves are not actuarially assessed when talking about regulatory requirement

“The company now has only a limited level of control over subsidiary companies that contributed significantly to  losses in 2009.”

Best explained that the under review status reflects its concerns and uncertainty over the future divestment from subsidiary companies as the operations of certain subsidiaries have been unbundled from that of the insurance company and future divestment is likely to have negative net worth as at December 2009.

Best said it would monitor the situation over the coming months and revisit the rating not later than the end of March 2011.

Best’s Credit Ratings are independent opinions regarding the creditworthiness of an issuer or debt obligation. Best’s Credit Ratings are based on a comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile, or, where appropriate, the specific nature and details of a debt security.

A.M. Best assigns the following types of ratings: Best’s Financial Strength Rating _ an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations. This rating is assigned to insurance companies.
Best’s Issuer Credit Rating an independent opinion of an issuer/entity’s ability to meet its ongoing senior financial obligations. This rating is assigned to insurance companies, banks, hospital/health_care systems, holding companies and other legal entities authorized to issue financial obligations.

Best’s Debt Rating an independent opinion of an issuer’s ability to meet its ongoing financial obligations to security holders when due. This rating is assigned to the debt securities and insurance-linked securities transactions of the entities rated by A.M. Best.