A.M. Best Co. announced that it has affirmed the financial strength rating of A- (Excellent) of France’s Mutuelle Centrale de Reassurance (MCR), but has maintained its “negative” outlook.
“The rating reflects MCR’s excellent risk-adjusted capitalisation and good niche reinsuring mutual organisations,” said Best. “This is offset by the company’s weak operating performance, notwithstanding the improvement in underwriting performance in recent years. The outlook on the rating continues to be negative due to the potential capital strain emanating from MCR’s relationship with Monceau group.”
Best said that even though it has weakened somewhat the company’s “risk-adjusted capitalisation remains excellent.” It also indicated that “existing capital is sufficient to support planned growth of approximately 10% in 2003 provided surplus is replenished through retained earnings and absent additional financial support to the member companies of Monceau group.”
The bulletin noted that MCR “derives a competitive advantage from its mutual status and exclusive reinsurance relationship with Monceau group.” It has also “reduced its dependence on Monceau by leveraging its co-operative structure to target analogous organisations in Continental Europe and gain access to partially insulated markets. In 2002, 75% of the EUR 210 million (USD 220.1 million) gross premiums written were ceded by mutuals and 40% from Monceau group.”
Nonetheless Best noted that MCR’s operating performance has been weak. It earned around $800,000 in 2002, below analysts’ expectations. “The combined ratio–adjusted for several non-underwriting charges in 2002–remained high at 105% in 2002 but is expected to improve to at least 103% in 2003 as the continued improvement in pricing, cancellation of risks that have resisted stricter terms at renewal or are highly catastrophe-exposed and improved risk management within Monceau group have a positive and stabilizing effect on underwriting results,” the bulletin continued.
Best explained that it had maintained the negative outlook because it “reflects the potential drag on MCR’s capitalisation and earnings arising from its relationship and financial solidarity with Monceau group. MCR is obligated to provide marginal capital support to several members by varying commission payments according to their respective financial needs. MCR paid EUR 4 million (USD 4.2 million) to a newly admitted associate member during 2002 in order to strengthen the mutual company’s solvency and also invested in a new affiliated life company. A.M. Best believes this pooling of capital could place some strain on MCR’s financial strength and flexibility.”
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