LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of Continental Reinsurance Plc (Continental Re) (Nigeria). The outlook for both ratings is stable.
The rating action reflects Continental Re’s strong consolidated risk-adjusted capitalisation, solid operating performance and established profile in its core domestic market. Offsetting 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 2014, real estate investments, along with unlisted fixed income and equity securities, accounted for 37% of total investments compared with 32% in 2013.
The group’s operating performance remained positive in 2014, albeit at a lower level compared to the previous year. Earnings were supported by strong non-life underwriting performance and stable investment returns, although tempered by the negative results of the group’s small life portfolio, due to the non-renewal of a large contract. Additionally, foreign exchange losses adversely affected earnings owing to the depreciation in the Nigerian naira. Although A.M. Best expects operating results to remain positive, underpinned by the relatively low claims activity in its target markets, technical margins are likely to continue to be affected by the group’s high expense base due to the lack of scale in its operations. Additionally, reduced insurance demand, due to the economic slowdown in Nigeria and its other (oil-exporting) target markets will likely constrain growth in earnings in the near-term.
In 2014, provisions established for outstanding premiums relative to gross written premiums declined to 14% compared with 21% in the previous year, with 25% of premium debtors maintaining duration of greater than a year, an improvement from 46% in 2013. This is a positive development for Continental Re corresponding to Nigeria’s “No Premium, No Cover” regulation of 2013, which prohibits the provision of insurance cover on credit. Nonetheless, the group remains exposed to premium collection delays in its other target markets.
Continental Re maintains an established business profile in Nigeria, being the sole private local reinsurer. Premiums sourced from Nigeria account for approximately two-thirds 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.
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