AM Best Revises Outlooks to Positive for CICA Re

AM Best has revised the outlooks to positive from stable and 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 Credit Ratings (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 (ERM).

The revision of the outlooks to positive follows the strengthening of CICA Re’s ERM framework and capabilities over recent years, during which the company carried out a detailed framework review, utilising internal resources and third-party risk consultants. Whilst CICA Re’s ERM remains at an early stage of development, AM Best expects the improvements to continue in the near term, notably as the company further formalises and embeds its ERM framework.

CICA Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the strongest level at year-end 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). The introduction of compulsory cessions to CICA Re on direct insurance business in the Conférence Interafricaine des Marchés d’Assurances (CIMA) region, effective since 2020, has resulted in a significant increase in the company’s underwriting risks, with net written premium projected to have increased by approximately 40% in 2020. However, CICA Re benefits from good financial flexibility, demonstrated through its successful capital raise of CFAF 20 billion (USD 36.8 million) from existing shareholders and new investors over the past two years, and AM Best expects CICA Re’s prospective risk-adjusted capitalisation to remain comfortably in excess of the level required for the strongest assessment. Partially offsetting balance sheet strength factors include high levels of receivables and the limited quality of assets, which have the potential to introduce volatility to the company’s solvency position.

CICA Re has a track record of adequate operating performance, with a five-year (2015-2019) weighted average operating ratio of 89.9%, supported by good underwriting results and stable investment income. The company reported a net profit of CFAF 5.1 billion (USD 8.7 million) in 2019, up from CFAF 4.6 billion (USD 8.0 million) in the previous year, driven by higher non-life insurance margins. AM Best expects net earnings to increase from 2020 onward, reflecting the increase in compulsory cessions in the region, provided the underlying profitability of insurance markets in the CIMA region remains good.

CICA Re maintains a good market position within the CIMA region, where it benefits from legal compulsory cessions on reinsurance business. In addition, the company also has a portfolio of open-market business originated from the CIMA region and across Africa, Asia and the Middle East, which AM Best expects to account for approximately half of total premium income going forward. Whilst the introduction of compulsory reinsurance cessions on direct business in 2020 enhanced CICA Re’s profile in the region, the business profile assessment remains constrained by the company’s modest scale by international standards, owing to the small size of the CIMA zone, and its role as a largely following reinsurer.

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AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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