AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit rating of “bbb-” (Good) of Continental Reinsurance Plc (CRe) (Nigeria). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect CRe’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management.

CRe’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). While CRe’s BCAR scores have consistently exceeded the threshold for a strongest assessment over the past five reporting years (2019-2023), its risk-adjusted capitalisation has been volatile, driven by rapid business growth and the significant devaluation of the Nigerian naira. CRe has taken steps to improve its capital management capabilities and is targeting more moderate growth over the medium-term; however, external factors such as the observed volatility in foreign exchange (FX) rates have the potential to inflate underwriting risk exposures and weigh negatively on risk-adjusted capitalisation. A further offsetting factor is CRe’s high exposure to the elevated levels of economic, political and financial system risk associated with its main operating markets in Africa. However, AM Best views these risks to be partially mitigated by the improving geographical diversification of CRe’s assets, evidenced in 2023 by the company’s decision to invest surplus assets offshore, namely in U.S. treasuries, thus improving the overall credit quality of investments. As at half-year 2024, offshore investments amounted to almost 20% of total investments.

CRe’s adequate operating performance assessment reflects its overall profitability considering inflationary conditions across key operating markets. Return-on-equity ratios have trended in the low double-digits over recent years, but increased to 24.6% in 2023, following improved non-life underwriting performance and material FX gains associated with CRe’s long U.S. dollar position. In 2023, CRe reported an improved combined ratio (net/gross) of 93.4% (2022: 97.1%), reflective of ongoing portfolio remediation efforts and improved economies of scale.

CRe is a composite reinsurer with a diverse presence across more than 50 countries in Africa. The company has grown significantly in local currency terms over recent years as part of its growth strategy, with gross insurance revenue increasing 30% to NGN 112.5 billion in 2023 (or USD 126.0 million). AM Best expects a more controlled approach to growth over the longer-term. However, ongoing volatility in currency markets may affect reported levels of growth in the near-term.