A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of African Reinsurance Corporation (Africa Re) (Nigeria).
The revised outlook reflects Africa Re’s enhanced risk-adjusted capitalisation, along with the improvement in underwriting results that followed the actions taken by management to focus on profitable growth. Additionally, the positive outlook considers Africa Re’s established market position in the increasingly competitive African reinsurance market and measures in place to mitigate exposure to political and economic instability in the Continent.
Africa Re’s excellent risk-adjusted capitalisation has been enhanced by robust earnings, as well as funds sourced from its capital raising initiatives. Since 2010, Africa Re has raised a total of USD 159 million, which has partly supported growth of shareholders’ funds to USD 677.5 million at year-end 2013. Africa Re’s ability to raise capital over the past four years illustrates the benefit of its status as a Pan-African reinsurer and its shareholder structure, which predominantly comprises member states and (re)insurance companies in Africa, as well as supranational organisations. Going forward, Africa Re’s excellent risk-adjusted capitalisation is expected to be sustained by retained earnings.
Africa Re’s underwriting performance has improved significantly over the past five years, with a reported combined ratio of 92.6% in 2013 (2012: 91.6%), compared with a high of 99.6% in 2008. The corporation has produced an underwriting profit in each of the last 10 years. The favourable trend in technical results is attributable to Africa Re’s evolving risk management, which has resulted in strengthened risk controls and monitoring capabilities to support its operations. The corporation now actively reviews and responds to loss-making risks, as demonstrated by the considerable contraction of the weaker-performing international portfolio.
A partly offsetting factor is the technical performance of the South African account, which remains weak. This reflects the impact of protracted soft market conditions and the high frequency of weather-related events. Nonetheless, A.M. Best expects Africa Re’s prospective underwriting results to continue to reflect the overall strong performance of its highly diversified portfolio and benefit from quality risk selection.
Africa Re's competitive position remains strong, 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 continuing to demonstrate favourable trends in underwriting performance and risk-adjusted capitalisation. A.M. Best will expect the corporation to sustain the improvements it has demonstrated in the weaker performing segments of its underwriting portfolio. These factors will be assessed over the medium term.
Negative rating actions could occur if there is unprofitable growth in the corporation’s core and non-core markets. Additionally, deterioration in risk-adjusted capitalisation resulting from Africa Re’s expansion could lead to downward rating pressure.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This rating announcement has been issued by A.M. Best Europe – Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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Contact:
A.M. Best
Deniese Imoukhuede, +(44) 20-7397-0277
Associate Director, Analytics
deniese.imoukhuede@ambest.com
or
Carlos Wong-Fupuy, +(44) 20-7397-0287
Senior Director, Analytics
carlos.wong-fupuy@ambest.com
or
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
Source Business Wire
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