AM Best Affirms Credit Ratings of African Reinsurance Corporation

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 its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects ARC’s risk-adjusted capitalisation to be supported by good internal capital generation, low underwriting leverage and a relatively conservative investment allocation. An offsetting factor is ARC’s exposure to the 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 mitigated partially by the company’s good geographical diversification, with reinsurance business well-diversified across the continent and other non-African markets, as well as a significant portion of surplus assets held offshore.

ARC has a track record of strong overall performance, with return-on-equity (ROE) ratios typically trending in excess of 7% over recent years, albeit subject to a level of volatility given the emergence of foreign exchange losses amid the devaluation of ARC’s operating currencies. AM Best notes that the company’s ROE should be viewed in light of its solid capital buffers and its reporting currency, the U.S. dollar. In 2023, ARC reported an improved ROE of 12.3%, reflecting solid underwriting earnings from its life and non-life operations, with the latter generating a combined ratio (net/gross) of 92.0% (2022: 93.3%). Non-life underwriting performance has improved materially since 2020, reflective of the actions taken by management to rationalise the underwriting portfolio. AM Best expects underwriting performance in 2024 and beyond to trend in line with recent years, supported by management’s strict underwriting approach, though depreciation of operating currencies against the U.S. dollar is expected to continue to weigh negatively on overall earnings.

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. For more information, visit www.ambest.com.

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