Fitch Ratings has affirmed Societe Tunisienne de Reassurance’s (Tunis Re) National Insurer Financial Strength (National IFS) Rating at ‘AA(tun)’. The Rating Outlook is Stable.
The rating agency said Tunis Re is Tunisia’s leading reinsurer and has a growing international presence (53% of gross written premium). Its strategic role within the economy of Tunisia is underpinned by its strong ties with its cedants, retrocessionaires and the Tunisian state (CCC).
“Our assessment of the company’s business profile is constrained by a moderately diversified business mix, and a limited potential for expansion into sound-quality international business,” Fitch said in a statement.
It added the company is highly exposed to systemic risk as most of its assets are domestic. Fitch-calculated risky asset ratio (RAR) increased to 223% at end-2021 (2020: 193%), driven by the downgrade of Tunisia’s Issuer Default Rating (IDR) in March 2022.
“Most of Tunis Re’s balance sheet is exposed to currency risk through its business operations that are increasingly skewed towards international markets, active use of international retrocession, and an unhedged currency mismatch between assets and liabilities.”
Fitch believes Tunis Re’s earnings are strong for the rating, supported by sound and improving technical profitability. Its combined ratio (CR) reached 92.5% in 2021 (2020: 96.9%) and averaged 96.3% over the last three years. Return on equity (ROE), as calculated by Fitch, improved to 7.7% in 2021 (2020: 6.9%) and is supportive of the rating.
The rating agency said it expects Tunis Re’s solid underwriting expertise, sound risk management and effective retrocession to be supportive of earnings.
Fitch also said it viewed Tunis Re’s retrocession practices as effective and positive for the rating.
“Tunis Re has developed strong business ties with highly rated international reinsurers. Retention rate has increased at 2021/2022 renewals, mostly for non-proportional reinsurance, while exposure to catastrophe risk remained largely retroceded.”