Best Affirms African Re ‘A-‘ Rating

May 27, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A-” (Excellent) and the issuer credit rating of “a-” of the Nigerian-based African Reinsurance Corporation. The outlook on both ratings has been revised to negative from stable.

“The ratings reflect African Re’s strong prospective operating performance and its excellent position in the African reinsurance market,” said Best. “The negative outlook reflects the decline in risk-adjusted capitalisation following a 51 percent increase in gross written premium in 2004 to $299 million; largely emanating from South Africa.”

Best also indicated that it “expects gross written premium to increase by approximately 20 percent in 2005 mainly due to the inclusion of pipeline premiums from 2003 and 2004 open underwriting years as African Re changes from three year funded accounting to an annual accounting basis.” The rating agency said it would “closely monitor premium development during 2005 as excessive growth would likely further deteriorate African Re’s risk-adjusted capitalisation, triggering a downwards rating review. In A.M. Best’s opinion, prospective risk-adjusted capitalisation is also heavily dependent upon an increase in paid-up capital to $100 million, due before the 2005 year end.”

Best said it “expects the company’s loss ratio will deteriorate to approximately 63 percent in 2005 (60.4 percent in 2004), largely as a result of softening premium rates. Financial performance is expected to remain solid, however, and A.M. Best anticipates retained earnings to improve to approximately $9 million ($4.9 million in 2004). African Re is expected to maintain its excellent market position in Africa where it writes approximately 13 percent of all reinsurance premiums.”

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