Financial assessment: Fitch maintains its favor with SCR

Fitch Ratings confirms the financial strength (IFS) of the Central Reinsurance Company (SCR), at “AAA”. The national operator, a subsidiary of CDG, also presents stable prospects.

Despite the gloomy economic climate, the Central Reinsurance Company (SCR) is doing well. This is confirmed by the international rating agency Fitch in its recent note on the Moroccan reinsurer. Indeed, Fitch confirms the SCR’s financial soundness rating (IFS) at “AAA” and affirms, at the same time, that this rating reflects in this case “the reinsurer’s ownership and exposure to sovereign debt, its strong capital position, its solid financial performance, and adequate procurement and reinsurance practices”.

In its note, Fitch recalls that the SCR’s rating benefits from the unlimited guarantee issued by the Moroccan State (BB+/Stable), and this, on its domestic activity. This point represents a solid base in the context of the evaluation of the company’s profile, compared to its local partners, the rating agency believes. At the same time, the company is gradually increasing its international diversification, as evidenced by the share of first gross written internationally, which represents 25% in 2021, compared to 22% in 2018. However, Fitch estimates that the growing international presence of the reinsurer has not necessarily resulted in a substantial weakening of its credit profile.

An investment strategy cautious
In addition, Fitch has also assessed SCR’s exposure to investment risk, which it considers high. This assessment is reflected in a capital ratio of assets to risk that reaches 283% at the end of 2021, and 288% at the end of 2020. The agency indicates that this “is mainly explained by a significant exposure to the government or guaranteed by the government. bonds, which are fully considered in the report, in accordance with the guidelines of the Fitch criteria”. That said, the agency considers the company’s investment strategy to be conservative compared to its domestic peers.

A solvent reinsurer
In addition, according to the model based on the Fitch prism factor, the CDG subsidiary obtained a “very solid” rating at the end of 2021, similar to that obtained at the end of 2020. Thus, the company remains in compliance with the national solvency regulatory requirements. This is precisely demonstrated by the Solvency-I type regulation ratio, which is 214% in 2021, while it was 209% in 2020 and 227% in 2019, including unrealized capital gains. In addition, the agency states that the Solvency-2 (S2) type ratio of SCR, calculated internally and certified by an internal actuarial firm, has strengthened to 202% in 2021 from 189% in 2020.

Good performance financial
According to Fitch, “SCR posts a record in terms of financial performance.” These results are reflected in a return on equity (ROE) calculated by Fitch of 11% in 2021, which is slightly below its five-year average of 13%. The reinsurer’s net result in 2021 was supported by a strong investment component, which manifested itself in a return of 5.3%, and, to a lesser extent, by positive underwriting results, particularly in the “Non-life” and “Life” categories. . In addition, Fitch believes that the profitability of the underwriting of non-vie to SCR has been solid, with a combined ratio of 94% that will remain unchanged in 2021.

“Conservative” provision.
SCR’s supply practices are considered “prudent” by Fitch. This observation is, precisely, “based on long experience and solid competence in the key markets where the SCR operates”, estimates the rating agency. It also reports on appropriate provisioning methodology and the accuracy of its initial estimates. It is noted, in this sense, that the SCR orders every year independent actuarial examinations of its provision levels by independent international companies, which confirms the point of view of the international agency on the good provision practices of the Moroccan reinsurer .

The “most favorable” SCR profile.
In its rating, Fitch classifies SCR’s business profile as “the most favorable” compared to other Moroccan insurers and reinsurers. For the agency “the SCR is not only a leading reinsurer in Morocco, but also the second reinsurer in Africa”. Therefore, the company submits reinsurance contracts, mainly in traditional insurance branches, such as automobile or investment goods, but also in specialized branches, such as marine, aviation or even engineering. In its analysis, Fitch considers SCR’s reinsurance and risk management to be strong and supports its rating. “The reinsurer has a strong credit quality retrograde panel, as Moroccan regulations require retrograde counterparties to be rated ‘A-‘ and above,” it is noted in this perspective. The rating agency considers SCR’s long-term ties with its partners to be qualitative and important for the company’s credit profile.

Sensitivity factors

Among the factors that could, individually or collectively, lead to a negative change in the rating, Fitch advances, in particular, unfavorable changes in the guarantee for the SCR, or even a declining domestic market share. Regarding the factors that could lead to an improvement in the rating of the SCR, the agency notes that the latter has the highest Fitch in the national scale. However, an update is therefore not possible.

Sanae Raqui / ECO Inspirations

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