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Nigeria-based Africa Re gets S&P global recognition

Africa RE, the leading reinsurance   corporation, has put Nigeria on the global insurance industry map, by being the first company in Nigeria to get a new A-(A minus) rating from Standard & Poor’s, probably the world’s most renowned rating institution. Standard & Poor’s Ratings Services raised its long-term financial strength rating and counterpart credit rating on Nigeria-based African Reinsurance Corp., Africa Re to ‘A-’ from ‘BBB+’.

In a report just released by Standard & Poor’s, it noted that “the upgrade reflects the cementing of the strong competitive position in the African insurance market, coupled with the continued strong, stable operating performance, and strong capitalisation. These positive factors are partially offset by its enterprise risk management, ERM, structure, which although adequate, lags international peers in terms of sophistication.

The political and economic environment drag within the company’s core African markets, are to some extent mitigated by the shareholder structure.

Africa Re continues to enjoy a strong competitive position in the African reinsurance market. Success is based on both its privileged access to business and the relationships within the African insurance community. Africa Re enjoys a strong market share of approximately 8 per cent, which implies reasonable room for growth, particularly as a reinsurance provider to the increasingly locally-retained energy business. Outside Africa, the company’s competitive position is more limited, although non-African business is not part of the company’s core strategy.

Africa Re has demonstrated strong and very stable earnings for more than 10 years. Its rapid growth in South Africa has not undermined this trend and in 2008, the group delivered a combined ratio of 99.7 per cent, slightly above the long-term average of 98.8 per cent. The return on equity, ROE of 9.2 per cent for 2008 was substantially down on the 2007 level of 16.3 per cent reduced by lower interest yields.

Regular capital infusions have enabled Africa Re to maintain strong capitalisation during a sustained period of growth. The company continues to benefit from direct investments by development finance institutions, DFIs, indicating the strong level of international support for the corporation in its development role and strong financial flexibility. Capital adequacy is strong.

In conclusion, Standard & Poor’s expects that the company will continue to enhance its capital and risk modelling. Opportunities for profitable growth within the African continent are limited by the prevailing economic development, but Standard & Poor’s Ratings Services believes the company is well placed to take advantage of these.

In a related development, A.M Best, another leading insurance rating institution has also scored Africa Re a resounding A -  (A minus), A.M Best affirmed the rating and scored Africa Re high on most of the indices.

The ratings reflect Africa Re’s strong competitive position within its core African markets, robust overall earning and solid prospective risk-adjusted capitalisation. Despite the hostile global economy, Africa Re recorded a profit-after-tax of USD 20.4 mllion in 2008. A.M. Best considers that despite the reduced overall profitability, Africa Re is likely to continue producing robust profits in 2009 and 2010.

Domiciled in Lagos, Nigeria, African Reinsurance Corporation, Africa Re, maintains a strong competitive position throughout the entire African reinsurance market. Africa Re has access to its geographically diverse portfolio of business via regional offices in Cote d’lvoire, Morocco, Kenya, Mauritius, Nigeria and Egypt, in addition to a sizable subsidiary in South Africa, Africa Reinsurance Corporation South Africa, Africa Re S.A. On overall liquidity, A.M. Best considers that Africa Re’s overall level of liquidity remained at a solid level of 97 per cent in 2008 and is likely to gradually increase to around 100 per cent by 2010.


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