AM Best has affirmed the financial strength rating of B (Fair) and the long-term issuer credit rating of “bb” (Fair) for Ethiopian Reinsurance (Ethio Re), with a stable outlook.
The ratings are based on Ethio Re’s balance sheet strength, which AM Best assesses as very strong, along with adequate operating performance, a limited business profile, and marginal enterprise risk management.
AM Best said that it expects Ethio Re to maintain capital buffers above the strongest threshold as it pursues strategic growth, aided by internal capital generation and shareholder capital injections. However, the company’s exposure to high economic, political, and financial system risks in Ethiopia, where most of its business is sourced and all invested assets are located, remains a concern.
In the broader African reinsurance landscape, similar ratings actions have been observed. For example, AM Best recently affirmed the B (Fair) rating with a stable outlook for East Africa Reinsurance Company Limited (EARe) in Kenya.
Like Ethio Re, EARe’s rating reflects strong capitalization and prudent underwriting, but also highlights the challenges faced by regional reinsurers operating in markets with elevated economic and political risks.
AM Best notes that these risks are partially offset by Ethio Re’s conservative investment portfolio, which is primarily allocated to cash and deposits. This approach limits the company’s exposure to market risks and the effects of the ongoing restructuring of Ethiopian sovereign bonds.
These risks are also not unique to Ethio Re. Other African reinsurers, such as EARe, are also navigating similar challenges. AM Best has noted that companies in the region are responding to deteriorating sovereign debt quality and macroeconomic volatility by taking steps to de-risk their investment portfolios and limit exposure to local market shocks.
Ethio Re reported a return on equity (ROE) of 17.1% for the year ending June 2024. AM Best points out that this figure should be considered in light of Ethiopia’s National Bank Rate, which has been 15% since August 2024. The company’s non-life underwriting performance has shown resilience, though it has experienced some volatility, with a net/net combined ratio of 96.4% in 2024.
Ethio Re, established in 2016, writes composite reinsurance business in Ethiopia and a select number of other African markets. It benefits from privileged market access in Ethiopia, generating more than 95% of its revenue domestically.
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