AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Compagnie Centrale de Réassurance (CCR) (Algeria). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CCR’s balance sheet strength, which AM Best categorises as very strong, as well as the company’s strong operating performance, neutral business profile and marginal enterprise risk management.
CCR’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the strongest level at year-end 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects risk-adjusted capitalisation to remain at the strongest level over the medium term, supported by relatively low underwriting leverage and good internal capital generation. The company has a moderate dependence on retrocession, which is used to protect peak exposures, notably domestically in Algeria. The balance sheet is protected further by a state guarantee (in the form of an interest free loan facility) covering business written as part of Algeria’s compulsory natural catastrophe scheme. The balance sheet strength assessment also factors in CCR’s exposure to elevated and increasing levels of economic, political and financial system risk associated with Algeria, with approximately 95% of assets invested domestically.
CCR has a track record of strong operating profitability, underpinned by robust technical results and good investment returns. Profit after tax but before transfers to the equalisation reserves has ranged from DZD 3.2 billion (USD 30.3 million) to DZD 4.8 billion (USD 40.4 million) over the past five years (2015-2019), driving a strong five-year weighted average return-on-equity ratio of 12.2% over the same period. The company has a five-year (2015-2019) average combined ratio of 82.8%. AM Best notes that while CCR’s loss ratio has increased over this period, from 47.0% in 2015 to 59.5% in 2019, prospective underwriting profitability is expected to remain robust, supported by relatively low net risk retention and the ongoing profitability of the underlying domestic insurance market.
CCR has a leading domestic market position as the national reinsurer in Algeria, with an estimated market share of 70% in 2019, as measured by ceded premium. As a state-owned company, CCR continues to benefit from compulsory cessions, manages various national insurance schemes in Algeria, and plays a pivotal role in the domestic natural catastrophe scheme. Despite growth in its international portfolio over recent years, CCR’s remains heavily concentrated in Algeria, where the company originated 83.5% of its business in 2019.
CCR’s risk management framework is at an early stage of development. Risk management capabilities are expected to improve with the development of an internal capital model.