Ghana Reinsurance rated as stable

Ghana Reinsurance Company Ltd., (Ghana Re) has been assigned the financial strength rating of B and the issuer credit rating of “bb+” by A. M. Best Company Ltd. The outlook for both ratings is stable.

According to reports, the rating of Ghana Re reflects the company’s strong risk-adjusted capitalisation and its very good overall financial performance results, although the company is becoming heavily dependent on the investment income return in the next few years. Offsetting factors are its limited financial flexibility, deteriorating underwriting performance results and restricted business profile.

A.M. Best believes that Ghana Re has a strong risk-adjusted capitalisation which is supportive of projected growth of approximately 6% per annum over the next two years.

However, in the view of A.M. Best there is limited financial flexibility as the capital growth is heavily dependant on retained earnings.

Ghana Re also pays out dividends, the amount of which is decided each year. A.M. Best doesn’t anticipate this amount to be more than approximately USD 2 million per annum in 2009 and 2010.

The reports say that A.M. Best expects Ghana Re to have atypical after tax profit results of USD 23.5 million mainly driven by extremely high realized capital gains from the sale of investment in securities this year, which according to A.M. Best’s estimation is to be a one-off event.

The results also include a good level of underwriting profit of approximately USD 4.5 million. However, going forward, A.M. Best anticipates significant deterioration in underwriting performance leading to a sharp decrease of technical income.

The combined ratio is likely to be approximately 95% -98% in the next few years, compared to a projected 82.9% in 2008—mainly due to increases in acquisition costs and management expenses. The net investment income ratio (excluding realized and unrealized gains) is likely to be around 8%-9% in 2009 and 2010.

A.M. Best believes that even though Ghana Re’s overall financial performance is likely to be at a good level, it will become heavily dependent on investment income results in the next few years.

A. M. Best’s view on Ghana Re is that, it is a small sized company even compared to some regional peers; however, it still has a strong dominant position in its domestic market with a 91% market share in non-life (which, for the foreseeable future, is the main focus of the company’s business) and a 100% market share in life business. The company has long and well established relationships with its domestic clients, which translates into a significant 87% of business written in 2007 and approximately the same proportion in 2008.

The reports said, the withdrawal of legal cessions in 2009 could lead to some potential vulnerability for the business from the domestic market. However, quoting A.M. Best, it is said to believe that Ghana Re’s reputation and its position in the market will help the company to pass the transition smoothly. Ghana Re has already signed treaties with some of its existent clients, yet, in A.M. Best’s opinion, further conversion of legal cessions into treaties would be advantageous to ensure long term business flow from the company’s core market, the reports said.

A.M. Best Company which was founded founded in 1899, is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.

Check A. M. Best’s site for how the ratings are done.

By Emmanuel K. Dogbevi

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