OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has downgraded the financial strength rating (FSR) to B- (Fair) from B (Fair) and the issuer credit rating (ICR) to "bb-" from "bb+" of Leadway Assurance Company Limited (Leadway) (Nigeria). The outlook for both ratings is stable.

The rating action reflects Leadway's reduced risk-adjusted capitalisation, declining operating performance and competitive operating environment partly due to the stressed economic conditions in Nigeria.

In A.M. Best's opinion, Leadway's current and prospective risk-adjusted capitalisation is significantly reduced and is not likely to remain supportive of its growth plans. This follows a reduction in capitalisation in 2008, resulting from the impact of unrealized losses on its shareholder funds, which, in A.M Best's opinion, partly reflects higher risk-taking on the company's investment strategy. Leadway's shareholder funds, which were heavily invested in equities, declined by 32% to NGN 12.5 billion in 2008. Whilst Leadway's capitalisation remains satisfactory for its current book, A.M. Best believes that this would be significantly impacted if Leadway grows its business in line with its projections. In addition, A.M. Best believes that Leadway's investment strategy is not likely to switch to less volatile asset classes in 2009, resulting in continued exposure of its capital to further decline if market conditions remain volatile.

Leadway's financial performance declined in 2008 and is likely to remain under pressure in 2009, following significant underwriting losses and a sharp increase in acquisition and management costs. The 44% gross premium growth in 2008 gave rise to a modest increase in net earned premiums (7%), whilst management expenses increased by approximately 58%, to 60% of earned premiums. A.M. Best believes investment performance is likely to remain subdued in 2009 due to Leadway's significant equity investment, which includes approximately NGN 3 billion holdings in unquoted securities. Leadway's overall loss ratio increased to 56%, up from 44% in 2007, following unusually large claims experienced in 2008, particularly on its fire business, which experienced a 172% loss ratio.


A.M. Best believes that Leadway's ability to grow its portfolio profitably is likely to be partially affected by its high level of non renewing policies (29%). In A.M. Best's opinion, the low business retention rate reflects increasing pressure from more capitalised insurers and will reduce the company's ability to increase premium rates, particularly on its motor business (Leadway's largest line), where rates have been softening following increased competition.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.





Analysts

A.M. Best Co.

Pedzi Chindotana, +(44) 20 7626 6264

pedzi.chindotana@ambest.com

Timothy Prince, +(44) 20 7626 6264

timothy.prince@ambest.com

or

Public Relations

Jim Peavy, +(1) 908-439-2200, ext. 5644

james.peavy@ambest.com

Rachelle Morrow, +(1) 908-439-2200, ext. 5378

rachelle.morrow@ambest.com



Source: A.M. Best Co.