Best Affirms ‘A++’ Ratings of French Gov’t. Reinsurer Caisse Centrale

August 30, 2010

A.M. Best Co. has affirmed the financial strength rating of ‘A++’ (Superior) and issuer credit rating of “aa+” of French government backed reinsurer Caisse Centrale de Réassurance (CCR), both with stable outlooks.

The ratings reflect CCR’s “superior risk-adjusted capitalization, good operating performance and excellent business profile in France and abroad,” said Best. “CCR’s capitalization continues to be supported by its conservative earnings retention policy and the backing of the French State.”

Best explained that CCR “offers reinsurance cover for natural catastrophe, terrorism and other exceptional risks with the explicit support of the French State, its sole shareholder, in the form of unlimited stop-loss reinsurance. Additionally, the company writes some conventional reinsurance business not covered by the State stop-loss, which is likely to represent approximately 40 percent of CCR’s premium income in 2010.”

The rating agency also said it anticipates that CCR’s operating performance “will continue to be driven mainly by the results of natural catastrophe reinsurance, which accounts for more than half of the company’s net written premiums.”

Despite the high volatility of natural catastrophe and other lines of business written by CCR, Best said it believes that the “impact of a catastrophic event on CCR’s balance sheet can be effectively absorbed by its equalization reserves and, should the latter prove insufficient, by the unlimited State reinsurance.”

In 2010 CCR’s main payouts have been to cover damages from Windstorm Xynthia and flash floods in the Var Department in southeast France. Best indicated that it does not “anticipate a significant deterioration in CCR’s risk-adjusted capitalization,” as a result of these payments.

However Best does anticipate that “CCR’s technical ratios will deteriorate in 2010 mainly due to the impact of Windstorm Xynthia on its natural catastrophe book, only partially offset by the improving performance of the smaller book of business not covered by the stop-loss.

“In 2009, CCR recorded a net profit of€554 million [$706 million] before equalization reserve provisions and a combined ratio of 56.0 percent despite the impact of Windstorm Klaus, the bush fires in Australia and the July hailstorm in Switzerland and Austria.

“CCR maintains a unique position as the main reinsurer of natural catastrophe risks underwritten in France.” Best said it “expects the company to retain its strategic importance for the French State as a provider of reinsurance for risks typically considered uninsurable.” It also believes that CCR will maintain a “solid profile in the open market, although this portfolio of business will continue to be incidental to the company’s main strategic mission.” In 2010 Best expects CCR’s gross written premiums to remain stable at around €1.2 billion [$1.323 billion]. They were €1.236 billion [$1.575 billion] in 2009.

Source: A.M. Best

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