LONDON–(COMMERCIAL WIRE)–I am better 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 on these Credit Ratings (ratings) is stable.
The ratings reflect the strength of ARC’s balance sheet, which AM Best assesses as the strongest, as well as its strong operating performance, favorable business profile and adequate enterprise risk management (ERM).
ARC’s balance sheet strength is supported by risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and supported by low technical leverage and a conservative investment allocation per asset class. A compensating factor is ARC’s high exposure to elevated levels of economic, political and financial system risk that are associated with its main operating markets in Africa. However, AM Best believes that these risks are partially mitigated by the company’s good geographic diversification, with a well-diversified reinsurance business across the continent and a significant portion of excess assets in North America and Europe.
ARC has a track record of strong overall performance, evidenced by a five-year (2017-2021) weighted average return on equity (ROE) ratio of 6.6%. However, in recent years, results have been negatively affected by the occurrence of foreign exchange losses associated with the devaluation of many African currencies against the US dollar. AM Best notes that the company’s ROE should be viewed in light of its large capital reserves and its reporting currency, the US dollar. The company has delivered strong long-term technical performance, as evidenced by a 10-year weighted average combined ratio (2012-2021) of 93.9%. While non-life underwriting performance was below expectations between 2018 and 2020, with combined ratios reaching 99.0% in 2020, the company delivered strong turnaround in 2021 with a combined ratio of 93.4% . AM Best expects potential underwriting performance to benefit from underwriting corrective measures implemented in recent years.
ARC is a composite reinsurer, with a primary focus on Africa. The company enjoys privileged market access and strong brand recognition, giving ARC solid long-term growth prospects as the region’s insurance markets and economies continue to develop. AM Best believes that ARC’s ERM framework is in line with the size and complexity of its operations.
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