LONDON--(BUSINESS WIRE)--AM Best has assigned a Financial Strength Rating of B (Fair) and a Long-Term Issuer Credit Rating of “bb” to Seguradora Internacional de Moçambique, S.A. (SIM) (Mozambique). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect SIM’s balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, limited business profile, and marginal enterprise risk management (ERM).
SIM’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR) at year-end 2018. Capital consumption is driven largely by asset risk arising from the company’s concentrated investment portfolio that is weighted toward domestic securities and local real estate. The balance sheet strength assessment also factors in the company’s strong liquidity and prudent reserving practices. A partially offsetting factor is SIM’s moderate dependence on reinsurance, although the associated risk is managed through the use of a stable reinsurance panel of solid credit quality.
SIM has a track record of solid and stable underwriting results, despite challenging market conditions, as highlighted by a five-year (2014-2018) weighted average combined ratio of 64.3%. The company’s main source of underwriting profit is from its motor portfolio, which in 2018 accounted for 31.5% of the overall technical margin. In 2018, SIM was the most profitable insurance company in Mozambique, reporting a profit before tax of MZN 1.1 billion (USD 18.0 million). Strong operating performance has been supported by a good balance of earnings between technical and investment income, contributing to a five-year (2014-2018) weighted average return on equity (ROE) of 27.9%.
SIM maintains a competitive position in its domestic market as the third-largest insurer in terms of gross written premium. However, the company’s profile is limited to Mozambique, which exposes it to very high levels of economic, political, and financial system risk. This presents a challenge for the company, although AM Best expects these risks to be mitigated partly by the company’s strong market position and evolving ERM practices.
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