A.M. Best Europe – Rating Services Limited has affirmed the
financial strength rating of B++ (Good) and issuer credit rating of
“bbb” of Société Centrale de Réassurance (SCR) (Morocco). The
outlook for both ratings remains stable.
The ratings reflect SCR’s adequate risk-adjusted capitalisation and good
business profile in the North African markets. An offsetting rating
factor is the potential volatility in SCR’s future technical performance
as the company increases the share of business it underwrites in the
open market in Morocco and overseas. The ratings also factor in the
explicit support provided by the Moroccan state through a comprehensive
loss absorption agreement.
A.M. Best views SCR’s current level of risk-adjusted capitalisation as
adequate, although it diminished in 2011 following a decrease of the
market values gains on the company’s investment portfolio. Given the
significance of unrealised gains on investments in SCR’s economic
capital, the company is exposed to fluctuations in its capital position
due to financial market volatility. SCR’s prospective level of
capitalisation is also limited by the high dividend requirements of its
main shareholder, state-owned Caisse de Depôt et de Gestion.
However, A.M. Best believes these factors are offset by the explicit
support provided by the Moroccan state through a comprehensive loss
absorption agreement covering the integrality of the company’s
A.M. Best expects SCR’s pre-tax earnings to be around MAD 400 million
(USD 45 million) in 2012 (MAD 581 million [USD 68 million] in 2011),
reflecting a continuing reduction in business written, as the legal
cession is progressively being phased out by 2013, and a slight
deterioration in technical performance as the company increases its
share of non-life business underwritten in the open market in Morocco
and abroad, which should increase its earnings volatility.
SCR maintains a strong competitive position as the leading reinsurer in
the Moroccan market. In A.M. Best’s view, the company’s business profile
should further benefit from its pivotal role in the new natural
catastrophe protection system whose implementation is currently under
project in Morocco. A.M. Best expects the additional premium income that
should be generated from this natural catastrophe reinsurance scheme to
offset over the medium term the decrease in business volume due to the
gradual phasing out of the legal cessions regime in Morocco. A.M. Best
will continue to monitor the impact of these prospective business
changes on SCR’s risk-adjusted capitalisation.
Upward rating movement could occur if A.M. Best were to positively
revise its current evaluation of Morocco’s country risk tier or if SCR
were to demonstrate a controlled growth of its open market business
combined with a strong technical performance.
Downward rating pressure could occur if SCR’s development of open market
business were to impact negatively its technical fundamentals, if the
country risk of Morocco as assessed by A.M. Best were to deteriorate, or
if the conditions of the current explicit state guarantee were to become
less favorable to the company.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Key criteria utilised include:
“Understanding Universal BCAR”; “Evaluating Country Risk”; “Risk
Management and the Rating Process for Insurance Companies”; and
“Evaluating Non-Insurance Ultimate Parents”. Best’s Credit Rating
Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a
link to required disclosures: A.M.
Best Europe - Rating Services Limited Supplementary Disclosure.
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