Best’s News & Research Service - December 08, 2021 12:19 PM (EST)
AM Best Affirms Credit Ratings of African Reinsurance Corporation
- December 08, 2021 12:19 PM (EST)
London //BestWire// - AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” (Excellent) of African Reinsurance Corporation (ARC) (Nigeria). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect ARC’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management (ERM).
ARC’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s risk-adjusted capitalisation benefits from a prudent asset allocation and low underwriting leverage. ARC has significant exposure to the generally high levels of economic, political and financial system risk that are associated with its main operations in Africa. However, AM Best considers that the company is able to offset this risk partially through its significant geographical diversification and conservative asset management strategy, with a substantial proportion of surplus assets held in North America and Europe.
ARC has a track record of strong operating performance over the longer term, despite challenging market conditions, evidenced by its 10-year (2011-2020) weighted average return on equity (ROE) of 11.1%. AM Best notes that ROE should be viewed in the context of ARC’s reporting currency, the U.S. dollar, which somewhat limits the impact of the high local inflation on the company’s reported net income. The company has demonstrated robust non-life underwriting performance over the cycle, posting a 10-year (2011-2020) weighted average combined ratio of 93.8%. However, in recent years underwriting results have weakened, with the combined ratio reaching a high of 99.0% for the year ended 2020. Although AM Best expects the company’s underwriting performance to improve over the medium term as the management team continues to implement corrective actions, the 2021 operating result is expected to be weaker than the long-run average, impacted by unfavorable foreign exchange losses.
ARC operates as a composite reinsurer across Africa, with a focus toward the continent’s largest insurance markets. The company enjoys privileged market access and brand recognition, which provide ARC with solid, long-term growth prospects as the region’s insurance markets develop. AM Best considers ARC’s ERM framework to be suitable given the size and complexity of its operations.
This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.