Fitch Ratings has affirmed
The Rating Outlook is Stable.
Tunis Re's National IFS is driven by its strong creditworthiness. The recent downgrade of
Key Rating Drivers
Leading Domestic Market Position: Tunis Re is
High Domestic Asset Risk: The company is highly exposed to systemic risk as most of its assets are domestic. The Fitch-calculated risky-asset ratio remained broadly stable at 224% at end-2022 (end-2021: 223%). Most of Tunis Re's balance sheet is exposed to currency risk through an unhedged currency mismatch between assets and liabilities from its growing business internationalisation. Currency risk is mitigated by the use of international retrocession programmes.
Strong Profitability: Fitch believes Tunis Re's earnings are strong for the rating, supported by sound and improving technical profitability. It reported a combined ratio of 91.7% in 2022 (2021: 92.5% in 2021, three-year average: 93.7%), despite the adverse impact of inflation and exchange rate effects due to the rise of the US dollar. This led to an improvement in the Fitch-calculated return on equity (ROE) to 8.6% in 2022 from 7.7% in 2021.
We expect Tunis Re's solid underwriting expertise, sound risk management and effective retrocession to mitigate potential earnings volatility resulting from foreign-exchange (FX) movements and financial market fluctuations.
Effective Retrocession: Tunis Re's retrocession practices are effective and positive for the rating. It has developed strong business ties with highly rated international reinsurers. In 2022 retention rate continued to increase as the company shifted its activity towards less volatile treaty business. Its whole portfolio is subject to an excess of loss policy, while exposure to catastrophe risk remained largely retroceded. However, the company remains vulnerable to higher retrocession cost.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Material improvements in Tunis Re's business risk profile, which could result from an increasing share of good-quality business outside
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Material deterioration in the company's business risk profile, which could result from increasing business presence in higher-risk markets
Evidence of significant deterioration in the company's retrocession policy and programme
Sharp deterioration in earnings resulting from reserve deficiencies, investment losses and/or weak underwriting discipline, over a prolonged period of time
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
RATING ACTIONS
Entity / Debt
Rating
Prior
Natl LT IFS
AA(tun)
Affirmed
AA(tun)
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