Fitch Ratings Confirms Tunis Re's Financial Strength Rating at "AA(tun)"
The outlook for the rating is stable. This excellent rating reflects the company's strong solvability compared to its local peers, thanks to its leadership in the national market and extensive international presence in countries with higher ratings than Tunisia. The share of gross written premiums from external markets reached 57% by the end of 2023.
Moreover, Tunis Re is a key player in the Tunisian economy, with close ties to all Tunisian cedants, including its major shareholders.
Capital Adequacy and Risk Profile
The reinsurer's capital base is adequate, with a solid capital foundation and a portfolio featuring low net catastrophe risk exposure. However, it has a high national asset risk. These assets are mainly in the form of monetary and fixed-income investments. Fitch notes that Tunis Re's balance sheet is more exposed to exchange rate risk than its local peers due to its international expansion. This risk is mitigated by the use of international retrocession programs.
Profitability
In terms of profitability, Fitch estimates that Tunis Re's earnings are high for its rating, thanks to a solid underwriting performance. The company recorded a robust net combined ratio of 92.7% in 2023, despite the February 2023 earthquake in Turkey, which caused a surge in the company's gross claim rate calculated by the rating agency to 65.2% in 2023, compared to 43% the previous year.
Tunis Re's expertise in underwriting and high retrocession standards enable it to mitigate the volatility of earnings resulting from exchange rate movements or unfavorable international claims. The company has close commercial ties with highly rated international reinsurers. In 2023, its retention rate continued to increase, as the company redirected its activity towards less volatile treaties. The entire portfolio is subject to an excess of loss policy, while catastrophe risk exposure remains largely retroceded. This prudent reinsurance policy has allowed Tunis Re to contain the net impact of non-recurring events. The return on equity stood at 7.7% in 2023.
Commercial Profile and Outlook
Fitch's assessment of the company's commercial profile is limited by its operational scale and modest expansion potential in foreign countries with higher ratings. At this level, it pays the price of the low sovereign rating, which is beyond its control.
Considering the sensitivity factors, we believe that there are no major risks of downgrade in the short and medium term. The company manages the business it accepts well, which earns it the status of one of the best public entities in Tunisia, in all aspects.