AM Best, A global credit rating agency, has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” (Fair) for Ethiopian Reinsurance S.C. (Ethio Re), maintaining a stable outlook.

AM Best highlighted Ethio Re’s balance sheet as the cornerstone of the rating, with its Best’s Capital Adequacy Ratio (BCAR) at the strongest level at the end of June 2024. The reinsurer is expected to sustain these buffers through internal earnings and shareholder injections, supporting its strategic expansion plans.

The agency noted that Ethio Re’s earnings are underpinned by both investment income and underwriting performance. For the fiscal year ending June 2024, the company achieved a return on equity of 17.1 percent and a net combined ratio of 96.4 percent, reflecting resilient non-life underwriting despite volatility in claims. Investment income, supported by domestic interest rates and conservative asset allocation, remains the primary contributor to overall earnings.

Ethio Re is heavily concentrated in the Ethiopian market, where it generates over 95 percent of revenue. This includes mandatory cessions from local insurers and first refusal rights on domestic business, providing privileged market access.

However, AM Best flagged high economic and very high political and financial system risks in Ethiopia, where the majority of Ethio Re’s business and invested assets are located. The company’s conservative portfolio, weighted toward cash and deposits, mitigates some of this exposure, including potential losses from sovereign bond restructuring.