Societe Tunisienne de Reassurance's (Tunis Re) earnings are strong, underpinned by solid underwriting performance, said Fitch Ratings.
The reinsurer reported a robust net combined ratio of 92.7% in 2023 (2022: 91.7%) despite the February 2023 earthquake in Türkiye, which caused the company's Fitch-calculated gross loss ratio to surge to 65.2% in 2023 from 43% the prior year as Tunis Re's conservative reinsurance practices helped contain the net impact.
The Fitch-calculated return on equity (ROE) stood at 7.7% in 2023 (2022: 8.6%).
The global credit rating agency expects Tunis Re's solid underwriting expertise and high retrocession standards to mitigate earnings volatility resulting from foreign exchange (FX) movements or in the event of adverse international claims experiences.
Ratings affirmed
Fitch Ratings has affirmed Tunis Re’s National Insurer Financial Strength (National IFS) Rating at 'AA(tun)'. The rating outlook is ‘Stable’.
Tunis Re's National IFS 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.
Apart from strong profitability, other key rating drivers for Tunis Re include:
Leading Domestic Market Position: Tunis Re is the leading reinsurer in Tunisia with strong domestic expertise and a large and developing international presence (57% of gross written premiums in 2023). Its importance to Tunisia's economy is underpinned by its 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, foreign countries.
Adequate Capital: Tunis Re scored 'Adequate' under Fitch’s Prism - Global (excluding the US) in 2023, driven by its large capital base and low net exposure to catastrophe risk, which is offset by a high asset risk. The reinsurer's internal risk-based capital model, which is consistent with Solvency II standards and reviewed by an independent international auditor, had a comfortable solvency margin at end-2023.
High Domestic Assets Risk: Fitch views Tunis Re's investment portfolio as high-risk due to its significant asset concentration to Tunisia, primarily in the form of monetary and fixed-income investments. Fitch believes Tunis Re's balance sheet is more exposed to currency risk than its local peers from its 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 company's retrocession practices are effective and positive for the rating. It has developed strong business ties with highly rated international reinsurers. In 2023, its retention rate continued to increase as the company shifted its activity towards a less volatile treaty business. Its whole 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.