AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Société Centrale de Réassurance (SCR) (Morocco). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect SCR’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
SCR’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the strongest level at year-end 2020, as measured by Best’s Capital Adequacy Ratio (BCAR), and is supported by significant unrealised investment gains and accumulated margins in technical provisions. SCR continues to benefit from an explicit guarantee provided by the Moroccan state. However, the cost associated with this guarantee has resulted in high dividend distributions to the company’s main shareholder, Caisse de Dépôt et de Gestion (CDG), a state-owned investment vehicle for Morocco, restricting internal capital generation over time. The balance sheet strength assessment also reflects SCR’s significant exposure to the high economic, political and financial system risks in Morocco, with over 95% of its assets invested domestically.
SCR has a track record of strong operating performance and has generated a five-year (2016-2020) weighted average return on equity of 12%. The company’s strong earnings have been driven by good investment returns and supported by solid technical profitability. SCR’s weighted average non-life combined ratio of 93% over the same period reflects the strong profitability of business underwritten in Morocco, which continues to benefit from sizeable regular reserve releases stemming from SCR’s legacy compulsory cessions business, which has been in runoff since 2014.
SCR has a good market position in Morocco with estimated market share of 50% of ceded premium, reflecting its established role as the national reinsurer. This strong domestic position partially mitigates the company’s limited scale in the global reinsurance market. In 2020, SCR reported gross written premium of MAD 2.6 billion (USD 299 million), of which 77% was generated domestically. SCR continues to develop its international presence, with this expansion supported by the opening of strategically located representative offices.
AM Best considers SCR’s ERM capabilities and framework to be appropriate given the company’s risk profile and the complexity of its operations. Nevertheless, AM Best expects SCR to remain focused on reinforcing its risk and capital management capabilities and embedding its ERM initiatives over the medium term.
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