Best Affirms Ratings French State Reinsurer Caisse Centrale de Réassurance

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A++’ (Superior) and issuer credit rating of “aa+” of French reinsurer Caisse Centrale de Réassurance (CCR); however, both ratings continue to have a negative outlook.

The ratings reflect CCR’s “superior risk-adjusted capitalization, good operating performance and excellent business profile in France and abroad,” said Best. “The ratings also factor in the explicit unlimited guarantee provided by the Republic of France to CCR’s state-backed business.”

Best said it views CCR’s risk-adjusted capitalization “as very strong. It is supported by a conservative earnings retention policy and the backing of the Republic of France. CCR offers reinsurance coverage 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 traditional reinsurance business not covered by the French state’s stop-loss guarantee, which was down 13 percent in 2012 to €513 million [$672 million] following the rationalization of the company’s portfolio.”

Best also indicated that it “anticipates that CCR’s operating performance will continue to be mainly driven by the results of natural catastrophe reinsurance, which accounts for more than half of its gross 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 and other special reserves, and should the latter prove insufficient, by the unlimited French state guarantee.”

The report also noted that “CCR recorded an improved net profit of €242.3 million [$317 million] in 2012, mainly stemming from the absence of exceptionally severe disasters, whilst the company’s managed assets generated a return of 4.2 percent (against 2.9 percent in 2011), partly driven by realized gains with the aim to diversify its portfolio.

“The state-backed reinsurance underwriting result benefitted from an increase of 4.9 percent of gross written premiums to €832 million [$1.09 billion] and was mainly impacted by the development of the claims related to the 2011 drought.

“Gross written premiums for the open market book of business were cut by 13 percent to €513 million [$672 million], chiefly as a result of the rationalization of the portfolio. Despite a deterioration in the claims related to the 2011 Thailand floods, which had a net impact on the result of €55 million [$72 million], CCR published a strong overall net combined ratio of 87.5 percent for 2012, against 102.1 percent in 2011.”

Best said it “expects the company to further increase the relative share of its state backed business and maintain a good operating profitability. CCR maintains a unique position as the main reinsurer of natural catastrophe risks underwritten in France with an estimated market share of around 90 percent.”

Best added that it “expects the company to retain its strategic importance for the French state as a provider of reinsurance for risks typically considered uninsurable.” Best also said it believes that CCR “will maintain a good profile in the open market, although this portfolio of business will continue to be incidental to its main strategic mission. In 2013 Best expects CCR’s gross written premiums to remain stable at around €1.3 billion [$1.7 billion].”

In conclusion the report indicated that “upward rating pressures are unlikely at this point.

“Negative rating actions could occur if the level of explicit support given to CCR by the French state or the creditworthiness of the Republic of France were to change.”

Source: A.M. Best

Topics Reinsurance