Yemisi Izuora
AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” 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 categorises as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.
ARC’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). ARC’s capital position is expected to be supported by high earnings retention, a conservative investment allocation and low underwriting leverage. ARC has significant exposure to the high levels of economic, political and financial system risks that are associated with operating mainly within the African region. However, AM Best considers that the company is able to offset this risk partially through its geographical diversification and conservative asset management strategy, with a significant proportion of surplus assets held in North America and Europe.
ARC’s strong operating performance reflects its record of solid underwriting profitability, as demonstrated by its five-year (2014-2018) weighted average combined ratio of 92.6 per cent and return on equity of 10.6 per cent over the same period. In 2018, the corporation’s profitability was impacted significantly by the decline in North American equity markets during the fourth quarter of the year, as well as a deterioration in a number of domestic currencies against ARC’s reporting currency, the U.S. dollar.
In 2019, AM Best expects profitability to recover against 2018 as a consequence of the recovery in the investment markets, as well as an improvement in the underwriting performance of the company’s South African operations following the implementation of the new management team’s turnaround strategy.
ARC operates as a composite reinsurer across Africa, with a concentration in the continent’s largest insurance markets. The company’s privileged market access and brand recognition provide ARC with solid long-term growth prospects as the region’s insurance markets develop.
