AM Best Downgrades Issuer Credit Rating of Société Tunisienne de Réassurance

LONDON--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “bb+” (Fair) and affirmed the Financial Strength Rating (FSR) of B (Fair) of Société Tunisienne de Réassurance (Tunis Re) (Tunisia). The outlook of the FSR has been revised to negative from stable while the Long-Term ICR outlook is negative.

The Credit Ratings (ratings) reflect Tunis Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

The downgrade of the Long-Term ICR reflects deterioration in Tunis Re’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). Heightened economic and political risk in Tunisia has driven significant increases in investment risk since 2020, materially reducing the margin that Tunis Re’s holds in excess of the strongest BCAR threshold at year-end 2022. AM Best notes that while the company benefits from a conservative investment portfolio by asset class, its concentration in Tunisia, where the company holds over 95% of its invested assets in line with regulatory requirements, weighs on asset quality.

The negative outlooks reflect ongoing country risk pressures in Tunisia, which could lead to further deterioration of the company's credit fundamentals, notably its balance sheet strength assessment.

Tunis Re has a track record of adequate operating performance. Over the 2018-2022 period, the company achieved an average return on equity (ROE) of 7.7%, with earnings largely stemming from solid investment returns; Tunis Re achieved a weighted average net investment yield (including gains) of 7.7% over the same period. Tunis Re’s underwriting performance has improved in recent years, with its non-life portfolio generating a technical profit for the fourth consecutive year in 2022, and a weighted combined ratio averaging 96.5% over this period (2019-2022). However, foreign exchange gains and losses have introduced a level of volatility to Tunis Re’s operating performance in recent years.

Tunis Re’s business profile assessment reflects its leading position in Tunisia and its good diversification into regional markets. Premiums generated outside Tunisia have accounted for approximately 50% of the company’s gross written premium (GWP) in recent years. Nevertheless, with GWP of TND 195 million (USD 63 million) in 2022, Tunis Re’s operations remain of limited scale in the global reinsurance market.

AM Best assesses Tunis Re’s ERM as marginal, reflective of the high risk operating environment in Tunisia, and the adverse impact it has on the company’s risk profile.

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