AM Best concerned by Africa Re’s capital structure

The financial strength ratings of Africa Re have been placed under review with negative implications by AM Best, which has cited concerns over the permanence of its capital structure.

Africa Re has a financial strength rating of ‘A’. The rating agency said it has reviewed the company’s capital structure and is concerned by the rights of shareholders to sell their shares back to Africa Re.

It said that if Africa Re’s management team cannot address these concerns, rating downgrades can be expected.

“These rating actions follow further analysis of the corporation’s capital structure, namely the rights of shareholders to sell their shares back to Africa Re,” AM Best said.

“The unique feature of these put options highlights potential concern over the permanence of the capital structure. Africa Re’s management team has initiated a course of action that will likely address AM Best’s concern and result in the corporation’s ratings being affirmed. However, if this is unsuccessful, rating downgrades can be expected.

“Supporting rating factors include Africa Re’s recent robust financial performance and the strong demand that the corporation has for its shares. Africa Re has a stable shareholder base composed of a diverse range of African (re)insurance companies and nation states, many of which are strategic investors. Furthermore, due to the corporation’s low level of underwriting leverage, its balance sheet strength is able to withstand a number of investors exercising their put options in a short time frame.”

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