LONDON, 20 June 2013—A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of African Reinsurance Corporation (Africa Re) (Nigeria). The outlook for both ratings remains stable.
The ratings of Africa Re reflect its strong risk-adjusted capitalisation and operating performance, as well as its established market position across the African reinsurance market. Although Africa Re is exposed to the unstable political and economic environment in some regions of Africa, these risks are largely mitigated by its geographic diversity, asset-liability matching strategy and the ease with which the corporation can shift its operations between its regional offices.
Africa Re continued with its capital-raising initiative during 2012, resulting in a rise in paid-up capital to USD 287 million from USD 100 million in 2009. This partly supported the rise in shareholders’ funds to USD 609 million in 2012 (2011: USD 482 million). Africa Re’s strong financial flexibility is supported by its status as a Pan-African reinsurer and its shareholding structure, which predominantly comprises member states and (re)insurance companies in Africa, and supranational organisations.
Further capital injections, along with higher retained earnings, are expected to support Africa Re’s strong level of risk-adjusted capitalisation in 2013.
Despite the exposure to a high incidence of large single risk losses in West Africa and the impact of the challenging market conditions and weather-related events in South Africa, Africa Re reported a 35% increase in pre-tax earnings to USD 93 million in 2012. Results were supported by a rebound in the equity markets, resulting in higher investment returns (including fair value gains) of 5.7% (2011: 3.7%), and a stable combined ratio of 91%. Africa Re’s strong underwriting performance reflects the benefit of its diversified portfolio (by class and geographic spread) and its focus on quality portfolio selection. In particular, the international account continues to demonstrate a downward trending combined ratio, following the cleansing of the portfolio of non-performing policies.
Africa Re’s competitive position remains strong. The corporation enjoys privileged access to business through its compulsory legal cessions and its longstanding relationship to stakeholders. Growth prospects remain constrained by the strong competitive conditions within some of its markets, particularly in South Africa. Business sourced through its South African subsidiary accounted for approximately 30% of gross written premium in 2012. Additionally, growth in premium volumes are likely to be affected by Africa Re’s focus on quality portfolio selection.
Positive rating actions could occur if Africa Re continues to maintain its strong underwriting results and risk-adjusted capitalisation over the longer-term period. A.M. Best expects the corporation to sustain the improvements it has demonstrated in the weaker performing segments of its underwriting portfolio.
Negative rating actions could occur if there is deterioration in Africa Re’s operating performance, particularly due to unprofitable growth in non-core markets, or deterioration in risk-adjusted capitalisation due to its expansion.
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.
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