French Govt. Reinsurer Gets Highest ‘A++’ Rating from Best

A.M. Best Co. has upgraded the financial strength rating to ‘A++’ (Superior) from ‘A+’ (Superior) and the issuer credit rating to “aa+” from “aa” of French government reinsurer Caisse Centrale de Reassurance (CCR), and has assigned stable outlooks to both ratings.

Best said the ratings reflect its view that “CCR has reduced its risk from the open market portfolio and the reinsurance provided by CCR has become even more important for the French market and government. In addition, the company achieved very strong overall earnings in 2007, which further strengthens its balance sheet.”

Best said it “believes that the restriction of CCR’s open-market portfolio to approximately one-third of overall premiums for the foreseeable future reduces the risk to its overall profitability. In 2007, CCR wrote €391 million [$605.5 million] (down 8 percent compared with 2006) of premiums in this segment, which is mainly short tail with a very low net probable maximum loss (PML) of €20 million [$31 million].”

The rating agency also said it ” believes that CCR is likely to continue to provide unlimited cover for catastrophic perils and terrorist risks with the explicit support of the French State (its shareholder) in the form of a stop-loss, despite the ongoing review of the natural catastrophe scheme.”

In Best’s opinion, “the increase in natural catastrophes, both in terms of frequency and severity, in the last few years (especially in respect of subsidence and floods) reinforces the importance of CCR’s role in the French market, and for the government, as it provides insurance cover that would otherwise not be available elsewhere.”

Best characterized CCR’s 2007 results as “superior,” with an “after tax profit of €640 million [$991 million]” up slightly from 2006’s €630 million ($975.4 million). This translates into a “return on premium of 67 percent and a return on equity of 30 percent,” Best noted.
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Best also said it “believes that CCR’s risk-adjusted capitalization is superior due to the limited risk arising from the natural catastrophe reinsurance as its exposure is matched to its equalization and natural catastrophe reserves and the stop loss from the French State protects claims exceeding this limit.”

Source: A.M. Best – www.ambest.com/ratings