AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” (Fair) of Compagnie Algérienne des Assurances (CAAT) (Algeria). The outlook of the FSR is stable. Concurrently, AM Best has withdrawn these Credit Ratings (ratings) as the company has requested to no longer participate in AM Best’s interactive rating process.

The ratings reflect CAAT’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management.

The negative rating outlook on the Long-Term ICR reflects pressures on CAAT’s operating performance assessment stemming from deteriorated operating performance over the last two years. The company reported return on equity (ROE) ratios of 6.5% and 4.3% in 2022 and 2023, respectively, which has led to a deterioration in its five-year (2019-2023) average ROE ratio to 8.2%, from 10.8% for the period 2017-2021. Reduced operating profitability was derived from worsening technical results, specifically impairment expenses, prior year reserve strengthening and large losses, resulting in combined ratios of 104.7% and 115.2% in 2022 and 2023, respectively, against around 90% prior to 2022. Investment results have remained positive and stable in recent years, leading to a net result after tax of DZD 1.3 billion (USD 9.4 million) in 2023.

CAAT’s balance sheet strength assessment is underpinned by its strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is supported by relatively low net underwriting leverage and good internal capital generation. AM Best considers CAAT to have a conservative investment portfolio by asset class, comprised of mainly bonds and cash. However, asset quality is limited with nearly all assets invested domestically, in line with local regulatory requirements, which exposes CAAT to the elevated levels of economic, political and financial system risks prevailing in Algeria. Other partially offsetting rating factors in the balance sheet strength assessment include high levels of premium debtors and CAAT’s increasing reliance on reinsurance, with 67.5% of gross written premium (GWP) ceded in 2023.

CAAT’s business profile assessment reflects its good competitive position in Algeria’s insurance market and its well-developed distribution network. In 2023, CAAT underwrote GWP of DZD 28.5 billion (USD 212.8 million), with it remaining the second-largest domestic insurer based on GWP with a focus on industrial and commercial property businesses. The company’s established market position is based on its historical role as the provider of transport insurance in its domestic market. A limiting factor in the business profile assessment is CAAT’s geographically concentrated business profile, with all insurance business sourced domestically.

AM Best considers CAAT’s risk management framework to be at an early stage of development, although this has been an area of strategic focus and development for the company in recent years. The company faces considerable challenges represented by the concentration of its business and assets in Algeria, where it is domiciled.

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