Best Rates Morocco’s Société Centrale de Réassurance ‘B++’

April 25, 2007

A.M. Best Co. has assigned a financial strength rating (FSR) of “B++” (Good) and an issuer credit rating (ICR) of “bbb” to Moroccan reinsurer Société Centrale de Réassurance (SCR), with a stable outlook.

“The ratings of SCR reflect the company’s excellent business position as Morocco’s national reinsurer, improving operating performance and adequate risk-adjusted capitalization,” said Best. The rating also factors the loss absorption agreement with the Moroccan State

Best said it believes that SCR has an excellent business position as Morocco’s national reinsurer, where its writes 70 percent of gross premiums, either through its compulsory cession or in the open market. SCR’s compulsory cession portfolio (55 percent premiums at year-end 2006) is to be phased out by 2012, following the signing of a free trade agreement.

Notwithstanding this, A.M. Best believes that SCR is successfully replacing this business by growing its non compulsory reinsurance business locally and by the introduction of natural catastrophe reinsurance in Morocco during 2007. In addition, SCR is expanding abroad, although in A.M Best’s opinion SCR will remain very dependent on the Moroccan market, as foreign premiums are not anticipated to exceed 20 percent in the medium term. A.M. Best expects gross written premiums to increase by approximately 7 percent to MAD 1.26 billion (USD 150 million) in 2007 with a further shift to open market business (approximately 48 percent of total premiums).

SCR’s overall pre-tax earnings increased by a strong 30 percent to MAD 270 million (USD 33 million) in 2006, resulting in a return on equity of 15 percent, mainly due to improving underwriting results and good investment income.

SCR’s combined ratio improved in 2006 through both open market and legal cession business (down by 6 percent to 88 percent and 22 percent to 98 percent respectively). SCR’s weaker technical results for compulsory reinsurance (mostly proportional treaties) are explained by the company’s dependence on primary insurers’ underwriting standards and risk controls which are only gradually improving.

Best also indicated that it believes SCR’s overall underwriting results will remain relatively stable in 2007 with an expected combined ratio below 100 percent, resulting in good overall pre-tax earnings of approximately MAD 330 million (USD 40 million) as the company progressively decreases it share of legal session and pricing conditions improve as primary insurers apply more risk adequate pricing.

Best considers SCR’s risk-adjusted capitalization is adequate factoring the limited growth forecast in 2007. In A.M. Best’s opinion, the demanding dividend requirements (85 percent of after-tax earnings distributed to its direct parent Caisse de Dépots et de Gestion and to the State) limit the potential for improvements in capitalization. However, the MAD 700 million (USD 85 million) capital injection by shareholders in 2005 proves their commitment to support SCR business plans. The loss absorption agreement with the Moroccan State protects SCR’s balance sheet.

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