AM Best has affirmed the Financial Strength Rating of B+ (Good) and Long-Term Issuer Credit Rating of 'bbb-' of Societe Tunisienne de Reassurance (Tunis Re) (Tunisia).
The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Tunis Re's balance sheet strength, which AM Best categorises as very strong, as well as the company's adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Tunis Re's balance sheet strength is underpinned by 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 the company's risk-adjusted capitalisation to remain at the strongest level over the medium term, supported by good organic capital generation despite the company's relatively onerous dividend policy. Tunis Re's balance sheet strength assessment also benefits from a track record of good financial flexibility and a highly liquid investment portfolio. However, with approximately 95% of assets invested domestically, the reinsurer is heavily exposed to the elevated levels of economic, political and financial system risk associated with Tunisia. The company's dependence on retrocession increased in 2019, following a change to the retrocession programme to increase protection against attritional losses.
Tunis Re has a track record of adequate operating performance, with a five-year (2015-2019) weighted average return on equity of 7.8%. Earnings over this period have been supported by solid investment income, while the technical account has seen a level of volatility, generating a weighted average (2015-2019) combined ratio of 101.6% (as calculated by AM Best). After weaker performance in 2018 (combined ratio of 113.2%), the company's non-life technical result improved in 2019, due to a decrease in natural catastrophe claims and a lower frequency of losses, supported by the changes in the retrocession programme. AM Best expects prospective technical profitability to benefit from recent corrective measures taken by Tunis Re management, which include exiting certain loss making lines of business
Tunis Re's business profile assessment takes into account its leading position in Tunisia, where it benefits from a market share of approximately 20% (measured by ceded premium), and its increasing diversification into regional markets. For the past two years, premiums generated outside Tunisia accounted for more than half of the company's total business. Nevertheless, despite experiencing good growth over the past five years, at less than USD 60 million of gross written premium, Tunis Re's operations remain limited on a global scale and its ability to grow its portfolio in a profitable manner may be hampered by competitive pressures domestically and abroad.
AM Best notes the recent actions taken to strengthen the company's corporate governance framework, which include increased representation of more independent board members and the separation of the board chairman and the chief executive officer functions in 2020.
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