A.M. Best Revises Outlook to Negative for Ghana Reinsurance Company Limited

A.M. Best Europe – Rating Services Limited has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of B (Fair) and issuer credit rating (ICR) of “bb+” Ghana Reinsurance Company Limited (Ghana Re) (Ghana).

The ratings reflect the company’s strong risk-adjusted capitalization, with Ghana Re continuing to transfer profit to capital over successive years. In 2008, there was a transfer of GHC 12 million, followed by a further transfer of GHC 8 million in 2009.

In 2008, the compulsory cession enjoyed by Ghana Re, which obliged insurers to cede 20% of their business written to the reinsurer, was removed. For Ghana Re in 2009 and the year to date, the effects of this legislative change begin to materialise. To maintain premium volumes, the company has replaced existing arrangements with quota share contracts that pay very high commissions. Despite this, premiums written have fallen in real terms and are likely to fall further. A further concern is that Ghana Re holds a large asset, relative to the size of the balance sheet and premium income, for premium debtors. New regulations from the Ghanaian insurance regulator stating that premiums older than a year must be written off is likely to put pressure on the company’s technical profitability.

It is still uncertain whether the removal of the compulsory cession may help to improve technical profitability. A.M. Best understands from Ghana Re that a significant proportion of the premium arrears are in respect of the insurers who were forced to cede business to the company. There are material pressures on the rating, but to the extent that the company can improve its business profile, there may be scope for a smaller, more profitable organisation to emerge.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies” and “Understanding BCAR for Property/Casualty Insurers”. Methodologies can be found at http://www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: http://www.ambest.co.uk/AMBERSDisclosure.pdf.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.