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FOR IMMEDIATE RELEASE
LONDON - NOVEMBER 01, 2018 12:51 PM (EDT)
A.M. Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Société Centrale de Réassurance (SCR) (Morocco). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect SCR’s balance sheet strength, which A.M. Best categorises as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
SCR’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which is narrowly maintained at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by high levels of unrealised investment gains and prudent reserving. Maintenance of risk-adjusted capitalisation at this level is likely to be dependent on the company’s ability to generate and retain sufficient earnings to absorb growth, and accommodate the cost associated with the explicit guarantee provided by the Moroccan state and the high dividend requirements of its main shareholder, state-owned Caisse de Dépôt et de Gestion. A further offsetting rating factor to the balance sheet strength assessment includes the significant exposure to the high financial system risk in Morocco, with over 90% of assets invested domestically.
Despite a challenging market environment, SCR’s operating performance has remained strong over the past five years, supported by a solid technical profitability and stable net investment returns. The company has reported a five-year (2013-2017) weighted average combined ratio of 83.4% and return on equity of 14.7%. The combined ratio deteriorated to 94.9% in 2017, driven by higher frequency of attritional losses and increasing acquisition expenses following a change in business mix. However, improvements in the life technical account and higher investment gains enabled SCR’s net income to double to MAD 492 million in 2017.
Despite a loss of business due to the phasing out of the compulsory cessions between 2007 and 2013, SCR continues to have a good market position in Morocco, reflecting its established role as the national reinsurer. The introduction of new compulsory lines of business in the domestic market, such as decennial, construction insurance and catastrophe insurance, are expected to help support SCR’s premium base prospectively. In addition, in response to the liberalisation of Morocco’s market, the company has been gradually diversifying its operations geographically to reduce its reliance on domestic business.
Despite growth in its international portfolio over recent years, SCR’s activities remain heavily concentrated in Morocco, where the company originated 76.8% of its business in 2017. This, together with significant exposure to domestic investments, means SCR’s performance is highly correlated with the macro-economic and political conditions prevailing in Morocco.
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