A.M. Best has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and the issuer credit rating to "a" from "a-" of African Reinsurance Corporation (Africa Re). The outlook for each rating has been revised to stable from positive. A.M. Best said the upgrade reflected Africa Re's excellent risk-adjusted capitalisation, consistently strong operating performance, and robust market position in the increasingly competitive African reinsurance sector. This comes in addition to the ratings factor in the framework in place to mitigate Africa Re's exposure to the heightened political and economic instability on the continent. Africa Re's risk-adjusted capitalisation remains at an excellent level, supported by robust earnings derived from its expansion within its core African market. Additionally, A.M. Best expects the corporation to continue benefitting from its strong financial flexibility, which is derived from the long-term capital support of shareholders, owing to its shareholding structure and status as a Pan-African reinsurer. Africa Re's shareholders consist of member states, African and international (re)insurance companies and supranational organisations. Prospectively, A.M. Best expects strong internal capital generation, a conservative balance sheet and excellent financial flexibility will likely continue to underpin Africa Re's financial strength. Africa Re's strong operating performance is consistently supported by stable and excellent underwriting results, as per the five-year average combined ratio of 90.3%. The corporation's technical results are attributable to its geographically well-spread insurance portfolio and evolving risk management, which has resulted in strengthened risk controls and monitoring capabilities to support operations. The technical performance of the South African account remains a partly offsetting rating factor. This reflects the impact of the protracted soft market conditions and the high frequency of weather-related events in this country. Nonetheless, the operating results of the South African business remain a solid contributor to the corporation's overall earnings. At the same time, the historically weak technical results of the modest international portfolio continue to have a negligible effect on Africa Re's operating performance. Africa Re's robust market position is supported by its privileged access to business through its compulsory legal cessions, strong reputation in the market and long-standing relationships with stakeholders. Despite the difficult operating environment overshadowing certain countries across the continent, as a result of low commodity prices, depreciating currencies and increased propensity for political instability, Africa Re has continued to expand in local currency terms as most markets continue to develop. However, downside risk remains owing to the scenario of a protracted economic slowdown across the continent and its potential impact on reduced insurance demand. Nonetheless, A.M. Best believes that Africa Re's well-diversified portfolio (by product and geographic spread) will support its ability to manoeuvre through these market conditions.
