Fitch Ratings has downgraded Africa Risk Capacity (ARC Ltd.)’s Insurer Financial Strength (IFS) rating to “BBB+” from “A-” and its Long-term Issuer Default Rating (IDR) to “BBB” from “BBB+”, reflecting the decline in the company’s standalone credit quality, which has been downgraded to “bb+” from “bbb-“.
The adjustment in the parametric insurer’s standalone credit quality was reportedly due to ongoing earnings volatility, which left its capital position vulnerable to potential losses.
Fitch Ratings assessed ARC Ltd.’s financial performance and earnings as “weak,” noting that drought and extreme weather events on the African continent resulted in a net loss of $38 million at the end of 2024, for a combined loss ratio of 180%.
However, the insurer’s net profit rebounded to $21 million in the first nine months of 2025.
Fitch warned that ARC Ltd.’s earnings may continue to be volatile due to the nature of the risks it insures, although reinsurance is expected to help limit net loss exposure.
The ratings agency also highlighted ARC Ltd.’s business profile, noting its specialized role as a parametric insurance company for African sovereigns and its relatively small size.
Fitch added that the company’s strong claims payment record, as well as improvements in product diversification and risk sharing, strengthen its franchise and support the agency’s overall assessment of its corporate profile.
Fitch said the ratings continue to reflect the commitment and credit quality of ARC Ltd.’s sponsors.
Fitch Ratings has upgraded ARC Ltd.’s standalone credit quality by three notches to ‘bb+’, reflecting its assessment of the sponsor’s willingness and ability to support the insurer on the back of the company’s growth objectives.
Fitch continued: “Despite ARC Ltd.’s volatile profitability, this growth was driven by our strong assessment of support sentiment.
“ARC Ltd. is sponsored by the German development bank KfW through the Federal Ministry for Economic Cooperation and Development (BMZ) and the UK Foreign, Commonwealth and Development Office (FCDO).
“KfW/BMZ and FCDO are also responsible for overseeing ARC Ltd.’s governance and development strategy, while also promoting sovereign participation in the business through a premium subsidy scheme.
“Fitch expects that ARC Ltd. will receive further capital support as it continues to achieve its growth objectives.”
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