Ratings Roundup: Continental Re, African Re

A.M. Best Europe – Rating Services Limited has upgraded the financial strength rating to ‘B+’ (Good) from ‘B’ (Fair) and issuer credit rating to “bbb-” from “bb+” of Nigeria’s Continental Reinsurance Plc, both with stable outlooks. The rating upgrades reflect Continental Re’s favorable underwriting performance record, its robust risk-adjusted capitalization and a strong improvement in the technical expertise and experience of the company’s board and senior management team following a number of key appointments,” said Best. Additional positive rating factors “include the improving quality of the company’s reinsurance panel and its risk management practices, as well as a reduction in outstanding premium debtors as a percentage of gross written premiums (GWP).” Best also noted that Continental Re’s premium income has grown rapidly over the last three years, following a capital injection in 2007, which “increased shareholders’ funds to over NGN 11 billion ($71 million), from NGN 2.2 billion ($14 million) at year-end 2006. Although further strong premium growth is anticipated in 2011 and 2012, risk-adjusted capitalization is expected to remain strong. The credit quality of Continental Re’s outwards reinsurance program continues to improve, with 98 percent of ceded premiums placed with reinsurers with a secure rating in 2010, compared to 81 percent in 2009. To date, premium growth has not had an adverse impact on Continental Re’s technical performance, and in 2010 the company achieved a solid non-life combined ratio of 79 percent.” Best added that, although it “expects the combined ratio to deteriorate to between 80 percent and 85 percent over the next few years, underwriting results are expected to remain good, supported by improved risk management standards. Continental Re’s overall performance is likely to continue to be affected by the write-off of premiums owed by debtors, which in 2010 reduced pre-tax profits by NGN 835 million ($5.4 million). In common with peers in the region, Continental Re’s volume of outstanding premium debtors is high, but has reduced as a percentage of GWP from 61 percent in 2007 to 35 percent in 2010. Reducing this ratio further remains a key focus of management. The company has a good business profile in Nigeria, being the only private local reinsurer and is developing its business profile in the rest of sub-Saharan Africa through the establishment of local offices. Non-life reinsurance business dominates Continental Re’s portfolio, representing approximately 85 percent of GWP, the majority of which is written on a proportional basis.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of Nigeria’s African Reinsurance Corporation, both with stable outlooks. Best said the “ratings reflect Africa Re’s improving prospective risk-adjusted capitalization, strong operating performance and its established position in its core African markets.” As offsetting factors Best cited “the widespread political unrest in Africa and especially in some of the countries in which Africa Re has business and shareholding partnerships. Africa Re’s capital increase which is going on during 2011 and is expected to continue into 2012, is anticipated to support the company’s current business and projected growth in the coming years. The total capital increase is expected to be in excess of $138 million and most of it (which is currently being offered to existing shareholders) is expected to be paid by the end of 2011.” In addition Best noted that Africa Re has “a good understanding of enterprise risk management and continues to develop and implement it successfully throughout the organization. In 2010, Africa Re further improved its operating performance posting a combined ratio of 93 percent (2009: 96.1 percent) and profits-after-tax of $64.9 million.” Best said it “expects profits to remain stable or slightly improve in the coming two years due to the company’s reinforced focus on profitability. The 2010 premium income of $628 million is diversified throughout Africa Re’s network of six regional African offices and its South African subsidiary. This arrangement has allowed Africa Re to maintain close contact with cedants throughout the continent of Africa and develop a very strong market position. Going forward, A.M. Best does not expect any major changes to the premium mix.”