LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Continental Reinsurance Plc (Continental Re) (Nigeria), the operating holding company of the Continental Re group of companies. The outlook of these Credit Ratings (ratings) is stable.
The ratings of Continental Re reflect its strong, albeit declining, consolidated risk-adjusted capitalisation, solid operating performance and established profile in its core domestic market. Offsetting rating factors are the group’s rising investment risk profile and exposure to Nigeria’s challenging economic environment.
Continental Re’s consolidated risk-adjusted capitalisation remains strong, reflecting its low net underwriting leverage, although tempered by its rising investment risk profile. At year-end 2015, real estate investments, unlisted fixed income and equity securities accounted for 37% of total investments compared with 32% in 2014. However, A.M. Best anticipates a material deterioration in the company’s risk-adjusted capitalisation for 2016, as a result of significant growth in net written premiums forecast for the year. In addition, Continental Re’s aggressive expansion plan is expected to continue to reduce its balance sheet strength without a commensurate rise in retained earnings to maintain its capital and surplus base. A.M. Best expects Continental Re to adopt a prudent capital management strategy to ensure the company can adequately support its strategic initiatives.
The group’s operating performance improved in the first half of 2016, with a net income of NGN 2.2 billion (approximately USD 7 million) compared with NGN 1.0 billion (approximately USD 3 million) for the same prior-year period. Earnings were supported by solid technical results and material foreign exchange gains, owing to the rise in the value of foreign denominated assets relative to the Naira.
Provisions established for outstanding premiums debtors accounted for a quarter of gross written premiums in 2015, a marginal decline compared with the previous year. However, approximately 75% of these receivables maintained a duration of greater than a year. Although Continental Re continues to benefit from the “No Premium, No Cover” legislation, which supports its timely collection of premiums derived from Nigeria, the group remains exposed to collection delays in its other target markets.
Continental Re maintains an established business profile in Nigeria as the sole private local reinsurer. Premiums sourced from Nigeria account for approximately 60% of its business. The group continues to develop its profile across Africa through the establishment of regional subsidiaries, which act as hubs to increase its access to various markets within the continent.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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