The earnings of Societe Tunisienne de Reassurance (Tunis Re) are strong for its rating, underpinned by solid underwriting performance, Fitch Ratings has said.
The global credit rating agency expects Tunis Re's profitability to remain strong due to its solid underwriting expertise and high retrocession standards, which mitigate earnings volatility resulting from FX movements or adverse international claims experiences.
Fitch has affirmed Tunis Re’s National Insurer Financial Strength (National IFS) Rating at 'AA(tun)'. The outlook is ‘Stable’.
Tunis Re's National IFS Rating is driven by its strong creditworthiness versus its local peers', benefiting from its leading domestic market position and its extensive international presence in higher-rated countries than Tunisia.
Fitch notes that Tunis Re reported a robust net combined ratio of 95.9% in 2024 (2023: 92.7%) despite wider losses from the April 2024 floods in Dubai. This resulted in the company's Fitch-calculated gross loss ratio remaining high at 64%. Tunis Re's conservative reinsurance practices helped contain the net impact, despite higher natural-catastrophe retention versus 2023. The Fitch-calculated return on equity (ROE) was 8.5% in 2024 (2023: 7.7%).
Aside from strong profitability, other key factors driving Tunis Re’s rating include:
Leading Domestic Market Position: Tunis Re is the leading reinsurer in Tunisia, with strong domestic expertise and a large, developing international presence, accounting for 60% of gross written premiums (GWP) in 2024. Its importance to Tunisia's economy is supported by strong ties with all Tunisian cedents, the largest of which are also its shareholders. Fitch's assessment of the company's business profile is constrained by Tunis Re's limited operating scale and modest potential for further expansion into overseas business in higher-rated countries.
Adequate Capital: Tunis Re scored 'Adequate' under Fitch’s Prism Global model in 2024, driven by its large capital base and low net exposure to catastrophe risk, which is offset by high asset risk. The reinsurer's internal risk-based capital model, consistent with Solvency II standards and reviewed by an independent international auditor, showed a comfortable solvency margin at end-2024.
High Domestic Assets Risk: Fitch views Tunis Re's investment portfolio as high risk due to its large asset concentration in Tunisia, primarily in monetary and fixed-income investments. Fitch believes Tunis Re's balance sheet is more exposed to currency risk than its local peers' due to an unhedged currency mismatch between assets and liabilities from its extensive and developing international expansion. Currency risk is mitigated by the use of international retrocession programmes.
Effective Retrocession: The reinsurance company's retrocession practices are effective and positive for the rating. It has developed strong business ties with highly rated international reinsurers. In 2024, its retention rate continued to increase as the company shifted its activity towards the less volatile treaty business. Its entire portfolio is subject to an excess-of-loss policy, while exposure to catastrophe risk remains largely retroceded. However, the company remains vulnerable to higher retrocession costs.