AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating to C++ (Marginal) from B- (Fair) and the Long-Term Issuer Credit Rating to “b+” (Marginal) from “bb-” (Fair) of Ghana Reinsurance PLC (Ghana Re) (Ghana). The outlook assigned to these Credit Ratings (ratings) is stable.

The ratings reflect Ghana Re’s balance sheet strength, which AM Best assesses as strong, as well as its 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 received the half-year 2024 results for Ghana Re and completed its assessment of the company’s rating fundamentals in light of this information.

The rating downgrades reflect deterioration in Ghana Re’s balance sheet strength fundamentals. The company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), was at the strongest level at year-end 2023; however, AM Best expects it to deteriorate significantly in 2024 as a result of a material growth in underwriting risks outpacing the growth in capital and surplus. Investment risk remains elevated due to the concentration of the company’s investment portfolio to Ghana. Furthermore, the company has experienced impairment of a significant portion of its Ghanaian debt holdings following the restructuring of domestic debt in 2023 and foreign debt in 2024.

Ghana Re’s adequate operating performance assessment reflects its track record of modest profitability on an inflation-adjusted basis in its main operating territories in most years. Ghana Re reported a robust profit in 2023, evidenced by the return on equity of 33%; however, profitability is expected to decline significantly in 2024 due to several large losses experienced in the first half of the year. AM Best notes that Ghana Re’s underwriting performance historically trended around breakeven over the underwriting cycle, though it has been highly volatile.

Ghana Re maintains a dominant position in Ghana as the largest local reinsurer. While Ghana Re has achieved solid geographical diversification in recent years, with over half of its reinsurance revenue now generated from outside of Ghana, the company lacks an established position in foreign markets.

Ghana Re is exposed to high levels of political, economic and financial system risks in the countries in which it operates. The company’s risk management framework is evolving, and its risk management capabilities are weak when compared with its risk profile. AM Best expects ongoing improvement in Ghana Re’s risk management framework in the medium to long term in order to navigate the challenging conditions in its operating markets.

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