Tunisia: Tunis Re shows strong profitability

Source: Middle East Insurance Review | Mar 2023

Societe Tunisienne de Reassurance’s (Tunis Re) earnings are strong, supported by a sound technical profitability, said Fitch Ratings as it affirms the reinsurer’s National Insurer Financial Strength (IFS) Rating at ‘AA(tun)’. The outlook is ‘Stable’.

Tunis Re reported a broadly stable 2022 net loss ratio (defined as the ratio of net loss expense to net earned premium) when compared with 2021 despite the impact of inflation and exchange rate effects due to the rise of the dollar. Its combined ratio reached 92.5% in 2021 and averaged 96.3% over 2021-2019. Fitch expects Tunis Re’s solid underwriting expertise, sound risk management and effective retrocession to be supportive of earnings.

Tunis Re’s National IFS is driven by its strong creditworthiness, the rating agency said. The recent upgrade of Tunisia’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘CCC+’ from ‘CCC’ does not alter the global credit rating agency’s view of Tunis Re’s credit risk relative to local market peers.

Other rating drivers for Tunis Re are:

Leading domestic market position: Tunis Re is Tunisia’s leading reinsurer and has a growing international presence (53% of GWP in 2021). Its strategic economic role in Tunisia is underpinned by its strong ties with its cedents, retrocessionaires, and the Tunisian state. Fitch’s assessment of the company’s business profile is constrained by a moderately diversified business mix and a limited potential for expansion into sound-quality international business.
High domestic assets risk: The company is highly exposed to systemic risk as most of its assets are domestic. The Fitch-calculated risky asset ratio was 223% at end-2021. Most of Tunis Re’s balance sheet is exposed to currency risk through its business operations that are increasingly skewed towards international markets, active use of international retrocession and an unhedged currency mismatch between assets and liabilities.
Adequate capital: Tunis Re’s capitalisation, as measured by Fitch’s Prism Factor-Based Capital Model, was ‘Adequate’ at end-2021, which supports the rating. Tunis Re’s internal risk-based capital model, which is consistent with Solvency II standards and was reviewed by an independent international auditor, had a comfortable solvency margin at end-2021. M

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