LONDON--(BUSINESS WIRE)--A.M. Best has revised the outlook to stable from negative and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of Société Centrale de Réassurance (SCR) (Morocco).
The ratings reflect SCR’s good level of risk-adjusted capitalisation, strong business profile in the North African markets and explicit support provided by the Moroccan state. Offsetting rating factors are the potential volatility in technical profitability arising from a change in business mix following the withdrawal of mandatory cessions from January 2014 to SCR from the domestic market and expansion into regional markets. The revision in outlook reflects the continued economic stability of the Moroccan state, which provides explicit support to SCR through a comprehensive loss absorption agreement.
In 2013, following an excellent operating performance that translated into a net result of MAD 406.8 million, SCR’s risk-adjusted capitalisation improved substantially. A.M. Best expects the company’s risk-adjusted capitalisation to remain supportive of the ratings through 2014 and into 2015, although SCR’s retained earnings are dampened by 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.
SCR maintains a strong competitive position as the leading reinsurer in the Moroccan market. Following the withdrawal of mandatory cessions and in order to maintain its profile, SCR is replacing lost business through setting up quota share arrangements with domestic insurers. SCR’s business profile should also benefit from its pivotal role in the new natural catastrophe protection system in Morocco, which is expected to be implemented within the next year as an underwriting pool managed by SCR.
Despite SCR producing strong results in recent years, prospective earnings are likely to be volatile as a result of the company’s plans to expand its footprint into Africa and the Middle East, while facing increased competition in its domestic market.
Continued strong operating performance and further improvement in risk-adjusted capitalisation could lead to positive rating actions. Downward rating pressure could occur if SCR has a prolonged deterioration in technical performance, if the socio-political and economic conditions in Morocco were to deteriorate, or if the terms of the current explicit state guarantee were to become less favourable 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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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