Best’s News & Research Service - December 09, 2022 09:04 AM (EST)
AM Best Affirms Credit Ratings of African Reinsurance Corporation
- December 09, 2022 09:04 AM (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 risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and supported by low underwriting leverage and a conservative investment allocation by asset class. An offsetting factor is ARC’s high exposure to elevated levels of economic, political and financial system risk that are associated with its main operating markets in Africa. However, AM Best views these risks to be partially mitigated by the company’s good geographic diversification, with reinsurance business well-diversified across the continent and a significant portion of surplus assets held in North America and Europe.
ARC has a track record of robust overall performance, evident by a five-year (2017-2021) weighted average return-on-equity ratio (ROE) of 6.6%. However, in recent years, results have been negatively impacted by the emergence of foreign exchange losses associated with the devaluation of many African currencies against the U.S. dollar. AM Best notes that the company’s ROE should be viewed in light of its large capital buffers and its reporting currency, the U.S. dollar. The company has generated robust underwriting performance over the long term, as demonstrated by a 10-year (2012-2021) weighted average combined ratio of 93.9%. While non-life underwriting performance was below expectations between 2018-2020, with combined ratios reaching 99.0% in 2020, the company achieved a solid turn-around in 2021 with a combined ratio of 93.4%. AM Best expects prospective underwriting performance to benefit from corrective underwriting measures implemented in recent years.
ARC is a composite reinsurer, with a primary focus on Africa. The company enjoys privileged market access and strong brand recognition, providing ARC with solid long-term growth prospects as the region’s insurance markets and economies continue to develop. AM Best considers ARC’s ERM framework to be aligned with 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 Performance Assessments, 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.