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African Reinsurance Corporation’s performance in 2023 and prospectively is expected to be in line with the trend in recent years, supported by strict underwriting, though adverse foreign currency movements are expected to weigh negatively on overall earnings, says AM Best.
African Re has a track record of robust overall performance, evident by a five-year (2018-2022) weighted average return-on-equity ratio (ROE) of 5.1%.
However, in recent years, results have been negatively impacted by the emergence 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 solid capital buffers and its reporting currency, the US dollar.
The company has generated robust underwriting performance over the long term, as demonstrated by a 10-year (2013-2022) weighted average combined ratio of 94.1%. While non-life underwriting performance has been volatile in some years, with 2018-2020 results below expectations, performance in recent years has improved significantly, with a combined ratio of 94.3% in 2022.
Ratings affirmed
AM Best has affirmed African Re’s Financial Strength Rating of ‘A’ (Excellent) and the Long-Term Issuer Credit Rating of ‘a’ (Excellent). The outlook of these credit ratings is stable.
The ratings reflect African Re’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).
African Re’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects African Re’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 African Re’s high 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 partially mitigated by the company’s good geographic diversification, with reinsurance business well-diversified across the continent and a significant portion of surplus assets held in North America and Europe.
African Re is a composite reinsurer, with a primary focus on Africa. The reinsurer enjoys privileged market access and strong brand recognition, providing it with solid long-term growth prospects as the region’s insurance markets and economies continue to develop. AM Best considers African Re’s ERM framework to be aligned with the size and complexity of its operations. years, supported by management’s strict underwriting approach, though adverse foreign currency movements are expected to weigh negatively on overall earnings.
Source: Middle East Insurance Review
