AM Best Affirms Credit Ratings of CICA Re

AM 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 AM Best
categorises as very strong, as well as its adequate operating
performance, neutral business profile and weak enterprise risk
management.

CICA Re’s balance sheet strength is underpinned by risk-adjusted
capitalisation that is comfortably at the strongest level, as measured
by Best’s Capital Adequacy Ratio, and is supported by low underwriting
leverage, a comprehensive retrocession programme and stable organic
capital generation over recent years. CICA Re also benefits from good
financial flexibility, with shareholders that have increased paid-up
capital several times in recent years to support the company’s
development. Offsetting factors include the high levels of receivables
on the balance sheet and the limited quality and diversification of
assets, which have the potential to introduce volatility to the
company’s solvency position.

The introduction of compulsory cessions to CICA Re on direct non-life
and life insurance business in the Conférence Interafricaine des Marchés
d’Assurances (CIMA) region, planned for 2020, is likely to result in a
significant increase in the company’s underwriting risks, with net
written premium forecast to double as a result. However, AM Best expects
CICA Re’s risk-adjusted capitalisation to remain at the strongest level,
supported by further growth in its capital base.

CICA Re has a track record of adequate operating performance, with a
five-year (2013-2017) weighted average operating ratio of 88.2%,
supported by good underwriting results and stable investment income. The
company reported a net profit of CFAF 4.1 billion (USD 6.9 million) in
2017, up from CFAF 3.8 billion (USD 6.1 million) in the previous year,
driven by higher life insurance margins. Prospective profitability,
while expected to be good, could be subject to volatility due to the
company’s exposure to emerging countries and its expansion into new
markets.

CICA Re maintains a good market position within the CIMA region, where
it benefits from legal compulsory cessions on reinsurance business. In
addition to compulsory business, the company also has a portfolio of
open-market business, which accounted for over 80% of total gross
written premium (GWP) in 2017, originated from across Africa and the
Middle East. The expected compulsory cessions on direct insurance should
enhance CICA Re’s profile in the region. However, the company’s business
profile assessment is anticipated to remain constrained by CICA Re’s
modest global scale, owing to the small size of the CIMA zone and its
role as a largely following reinsurer.

Despite developments made over the past two years, CICA Re’s risk
management framework is considered to be at an early stage of
development, with further progress needed to embed it in the company.

This press release relates to Credit Ratings that have been published
on AM Best’s website. For all rating information relating to the release
and pertinent disclosures, including details of the office responsible
for issuing each of the individual ratings referenced in this release,
please see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.

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