S&P Raises Outlook on Moroccan Reinsurer; ‘BBB’ Ratings Affirmed

April 3, 2007

Standard & Poor’s Ratings Services has revised to positive its outlook on Morocco-based reinsurer Société Centrale de Réassurance (SCR), following the revision to positive of the outlook on the local currency ratings on the Kingdom of Morocco (BBB/Positive/A-3). At the same time, S&P affirmed its ‘BBB’ long-term counterparty credit and insurer financial strength ratings on SCR.

“SCR is the top reinsurer in Morocco with more than a 70 percent market share and Moroccan dirham (MAD) 2.24 billion ($237 million) in gross premiums written at year-end 2005,” said S&P. “The company assumes 10 percent of the total local market on a quota share basis through ‘legal cessions,’ where it has no competitor; and writes conventional reinsurance, which is subject to full competition.

“The ratings reflect SCR’s public-policy institution status, based on 94 percent ownership by the state financial institution Caisse de Dépôt et de Gestion; an unconditional governmental guarantee protecting SCR’s balance sheet; a dividend policy consisting in paying most of net earnings to its parent; and substantial investments (84 percent of bonds) in Moroccan government bonds.

“The ratings also reflect SCR’s very good competitive position and good operating performance. These factors are partially offset by execution risks associated with the implementation of its strategy, investment concentration risk, and aggressive dividend policy.”

S&P credit analyst Lotfi Elbarhdadi noted that because the rating agency “views SCR as a public-policy institution, the ratings and outlook on the reinsurer are aligned with those on Morocco. As a result, if the local currency sovereign ratings on Morocco changes, we would take a similar action on the ratings on SCR.”

S&P also indicated that “SCR should gradually benefit from the liberalization of rates on auto insurance in Morocco and the introduction of segmentation, which is expected to improve underwriting results. In 2006-2007, Standard & Poor’s expects that the combined ratio will be 92 percent-95 percent for conventional business.”

S&P also said it “expects that the company will grow its top line by 10 percent in 2007, largely supported by international markets. Earnings could be more volatile because the company will assume catastrophe exposure. Capital adequacy will decrease, as the company underwrites more business and retains more of it on its books, especially catastrophe covers that require extra capital as a volatility buffer. Capitalization should remain consistent with the current rating, however.”

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