AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) of WAICA Reinsurance Corporation PLC (WAICA Re).
Additionally, the rating agency has also revised the Long-Term Issuer Credit Rating of “bbb-” (Good) of the West African reinsurer.
Am Best notes that the credit ratings reflect WAICA Re’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management.
At the same time, the revision of the outlooks to negative from stable, reflects pressure on WAICA Re’s balance sheet strength.
This follows the deterioration of the company’s risk-adjusted capitalisation, driven by significant business growth over the past 24 months, the rating agency noted.
However, as measured by Best’s Capital Adequacy Ratio (BCAR), WAICA Re’s risk-adjusted capitalisation remained at the strongest level at the end of 2021, albeit with a reduced buffer to absorb potential shock losses.
The assessment on the company’s balance sheet strength also considers WAICA Re’s conservative investment allocation by asset class, with the majority of the portfolio held as cash and deposits, and low level of retrocession dependence.
Partially offsetting rating factors include the company’s exposure to significant economic, political and financial system risks associated with the countries where WAICA Re operates in, including Nigeria, Ghana and Sierra Leone, as well as a relatively high level of insurance receivables.
AM Best said: “WAICA Re has a track record of strong operating performance, demonstrated by a five-year (2017-2021) weighted average combined ratio (as calculated by AM Best) and return-on-equity ratio of 88.4% and 12.4%, respectively.
“AM Best expects WAICA Re’s prospective earnings to remain strong, underpinned by robust technical performance, and complemented by positive, albeit modest, investment returns, reflecting the low-yielding assets in which the company primarily invests.”
The rating agency considers WAICA Re’s business profile to be limited owing to its relatively small size and geographic concentration of business in Nigeria and Ghana.
Whilst AM Best expects WAICA Re to grow its premium base gradually through diversification into other markets – it reported gross written premium on a consolidated basis of $153.3m in 2021 – , business is expected to continue to originate primarily from Nigeria and Ghana