LONDON–(BUSINESS WIRE)–AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of “bb-” (Fair) of Ghana Reinsurance PLC (Ghana Re) (Ghana). The outlook assigned to these Credit Ratings (ratings) is negative.
The ratings reflect Ghana Re’s balance sheet strength, which AM Best assesses as strong, as well as the company’s adequate operating performance, limited business profile, and weak enterprise risk management.
The ratings have been removed from under review with negative implications as AM Best has completed its assessment of the impact of deterioration in economic and operating conditions in Ghana including the implications of default and restructuring of Ghanaian domestic debt on the company’s balance sheet strength and broader credit fundamentals. However, the assigned negative outlook reflects downside pressure on the balance sheet strength assessment emanating from Ghana Re’s exposure to elevated investment risk due to its holdings of debt instruments issued by the Government of Ghana and its exposure to the domestic banking sector through cash and deposits.
Ghana Re’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level at year-end 2022, as measured by Best’s Capital Adequacy Ratio (BCAR), albeit with reduced buffers given the deterioration in the credit quality of its investments in Ghana and significant growth in underwriting exposures. Liquidity risk is elevated given the suspension of servicing of Ghanaian eurobonds and reduction in coupons on restructured domestic debt; however, the company has sufficient holdings in cash and treasury bills to cover its net insurance reserves over the near term.
Ghana Re’s adequate operating performance assessment reflects its modest overall profitability on an inflation-adjusted basis and volatile underwriting performance, as demonstrated by a five-year (2018-2022) return-on-equity ratio of 11% and weighted average combined ratio of 102.1%. In 2022, the combined ratio deteriorated to 111.4% due to the strengthening of foreign-currency technical reserves amid the depreciation of its reporting currency (Ghanaian Cedi). In addition, 2022 results were weakened by investment impairments booked on Ghanaian government debt investments. Nonetheless, AM Best notes the impact on overall earnings was offset by substantial foreign exchange gains on the company’s foreign-currency investments. Investment results are expected to remain supportive of profitable operating performance given the high interest rate environment in Ghana Re’s core markets.
Ghana Re maintains a solid competitive position in Ghana as the largest domestic reinsurer. While Ghana Re has achieved solid geographical diversification in recent years, with over half of its premiums now generated outside of Ghana, the company lacks an established position in non-domestic markets.
Ghana Re is exposed to high levels of political, economic and financial system risks in the countries in which it operates (mainly Ghana and Kenya). The company’s risk management framework is evolving and risk management capabilities are weak when compared with the company’s risk profile. AM Best expects ongoing improvement in Ghana Re’s risk management framework in the medium to long term.
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