AM Best gives African Reinsurance Corporation an excellent rating amid challenging market conditions

African Reinsurance Corporation (ARC), headquartered in Nigeria, has received affirmation of its Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of 'a' (Excellent) from AM Best. This rating reflects ARC's balanced financial strength assessed as the strongest, buoyed by strong operating performance and a favorable business profile. Key factors contributing to this status include ARC's robust risk-adjusted capitalization, which is maintained at the strongest level as per Best's Capital Adequacy Ratio (BCAR). Furthermore, AM Best anticipates that ARC's risk-adjusted capital will benefit from significant internal capital growth, low underwriting leverage, and a conservative investment structure. Nonetheless, the corporation faces challenges from elevated economic, political, and financial risks prevalent in its primary operating environments across Africa. However, these risks are moderated by adequate geographical diversification. Currently, ARC sustains a diversified reinsurance portfolio across the African continent and in various non-African markets, with a significant fraction of surplus assets held offshore to mitigate potential local market risks. The organization has consistently demonstrated strong performance with return-on-equity (ROE) ratios often exceeding 7%, despite fluctuations due to foreign exchange losses linked to local currency devaluations. Notably in 2023, ARC recorded an improved ROE of 12.3%, thanks to solid underwriting profits from both its life and non-life operations, with the combined ratio for non-life operations showing improvement from 93.3% in 2022 to 92.0%. Moving forward, AM Best expects ARC's underwriting performance to remain stable, supported by management's stringent underwriting practices, yet warns that depreciation of local operating currencies against the U.S. dollar may impact overall earnings negatively.