LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of African Reinsurance Corporation (Africa Re) (Nigeria). The outlook for both ratings is positive.
The ratings reflect Africa Re’s excellent risk-adjusted capitalisation and operating performance, along with its established market position in the increasingly competitive African reinsurance market. Additionally, the ratings factor in the framework in place to mitigate Africa Re’s exposure to potential political and economic instability on the continent.
Africa Re’s excellent risk-adjusted capitalisation is expected to remain supported by robust earnings derived from its expansion within its core African market. Additionally, the corporation is likely to continue to benefit from its strong financial flexibility, which has been demonstrated in recent years through its capital raising initiatives that resulted in a total of USD 159 million (since 2010) being resourced to support its financial stability. Furthermore, despite the exit of some well-esteemed supranational organisations from Africa Re’s shareholding structure in 2014, the corporation was able to attract high quality strategic investors from the international markets, demonstrating its attractiveness as an investment proposition. A.M. Best expects strong internal capital generation, a conservative balance sheet and long-term capital support from shareholders to continue to underpin Africa Re’s financial strength.
Africa Re’s underwriting performance is consistently excellent, as per the five-year average combined ratio of 91.2%. The corporation’s technical results are attributable to Africa Re’s evolving risk management, which has resulted in strengthened risk controls and monitoring capabilities to support its operations. The technical performance of the South African account remains a partly offsetting rating factor. This reflects the impact of the protracted soft market conditions and the high frequency of weather-related events in the country. Nonetheless, the operating results of the South African business remain a solid contributor to the corporation’s overall earnings.
Africa Re’s established competitive position is supported by its privileged access to business through its compulsory legal cessions and long-standing relationships with stakeholders.
Positive rating movement would depend on Africa Re maintaining its excellent underwriting performance, whist maintaining sufficient capital buffers within its risk-adjusted capitalisation. A.M. Best also expects the corporation to sustain the improvements in the weaker-performing segments of its underwriting portfolio and to continue to develop its risk management framework in line with its evolving risk profile.
A revision of the outlook to stable could occur if there is a reversal in the positive track record demonstrated within Africa Re’s technical results. Furthermore, negative rating pressure is likely should Africa Re’s excellent capital management strategy weaken as a result of a higher-than-expected rise in premium volumes or due to unfavourable reserve developments resulting from an expansion in its core and non-core markets.
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