[Togo] A.M Best affirms credit rating of CICA Re
A.M. Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” of Compagnie Commune de Réassurance des Etats Membres de la Conférence Interafricaine des Marchés d’Assurances (CICA Re) Togo. The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect CICA Re’s balance sheet strength, which A.M. Best categorises as very strong, as well as its adequate operating performance, neutral business profile and weak enterprise risk management (ERM).
CICA Re’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio model, supported by low underwriting leverage and a comprehensive retrocession programme.
Despite the decision in 2014 to increase the dividend pay-out ratio to up to 50% of post-tax profits per annum, A.M. Best expects the company to generate sufficient internal capital to support the strong business growth associated with its prospective strategic initiatives.
Offsetting factors in the balance sheet strength assessment include high levels of receivables and the limited quality and diversification of assets, which have the potential to introduce volatility to the company’s solvency position.
CICA Re has a track record of adequate operating profitability with a five-year (2012-2016) weighted average operating ratio of 86.9%, supported by good albeit volatile results from the non-life portfolio, and stable results from the smaller life portfolio.
The company reported a net profit of CFAF 3.8 billion (USD 6.1 million) in 2016, up from CFAF 3.2 billion (USD 5.4 million) the previous year, driven by higher non-life margins. A.M. Best expects prospective performance to remain positive but subject to volatility, as CICA Re remains exposed to high economic and financial risks prevailing in the Conférence Interafricaine des Marchés d’Assurance (CIMA) region.
In addition, the company continues to expand in territories where it has less underwriting experience.
CICA Re maintains a good niche market position, benefiting from legal compulsory cessions in the CIMA region. The company also has a portfolio of open-market business, which accounted for over three quarters of total gross written premium (GWP) in 2016, originated from across Africa and the Middle East.
CICA Re’s GWP has grown by a compound annual rate of 15.5% between 2012 and 2016 to CFAF 38.2 billion (USD 61.5 million). However, the company’s global profile remains modest, owing to its role as a following reinsurer on the placements on which it participates and the small size of the CIMA zone.
In line with other reinsurers in the region, CICA Re’s risk management framework is considered in an early stage of development, constraining the ERM assessment.