A.M. Best Affirms Credit Ratings of Caisse Centrale de Rassurance and CCR RE

A.M. Best has affirmed the Financial Strength Rating (FSR) of A+
(Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of
“aa” of Caisse Centrale de Réassurance (CCR) (France).
Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the
Long-Term ICR of “a” of CCR RE (France). The outlook of these
Credit Ratings (ratings) is stable.

The ratings of CCR reflect its balance sheet strength, which A.M. Best
categorises as strongest, as well as its adequate operating performance,
favourable business profile and appropriate enterprise risk management
(ERM). The ratings also consider, in the form of rating enhancement, the
explicit unlimited guarantee provided by the Republic of France to CCR’s
state-backed business.

CCR’s balance sheet strength assessment reflects the company’s very
strong risk-adjusted capitalisation, as measured by Best’s Capital
Adequacy Ratio (BCAR). Substantial equalisation provisions provide
capacity to absorb the company’s peak exposures to natural catastrophe,
terrorism and other exceptional risks. Furthermore, CCR benefits from a
liquid investment portfolio of good quality assets and a track record of
conservative reserving practices. The support of the Republic of France,
CCR’s ultimate shareholder, which provides the company with an unlimited
guarantee for its public reinsurance activities, is reflected in the
balance sheet strength assessment and in rating lift.

CCR’s favourable business profile is underpinned by the role the company
plays in the French public reinsurance regime and its unique position as
the principal reinsurer of natural catastrophe risks underwritten in
France with an estimated market share of approximately 90%. CCR’s market
offering of a 50% quota share, supplemented by an optional, unlimited
stop loss treaty, is considered a competitive advantage.

Several years of benign catastrophe loss experience have allowed CCR to
establish a track record of good operating performance and reinforce its
balance sheet strength through earnings retention. In 2016 and 2017, CCR
experienced some of the largest loss events since the creation of the
French natural catastrophe regime. Notably, floods in France in 2016 and
Hurricane Irma in the French Antilles in 2017, have driven non-life
combined ratios of 103.5% and 196.3% in each year, respectively (as
calculated by A.M. Best). However, the release of equalisation
provisions, accumulated over the years to absorb such catastrophe
losses, allowed the group to record a consolidated net profit of EUR 141
million in 2016 and EUR 45 million in 2017. Given the exposure of the
company to potentially significant catastrophe losses, prospective
results are likely to remain subject to volatility.

The ratings of CCR RE reflect its balance sheet strength, which A.M.
Best categorises as strong, as well as its adequate operating
performance, neutral business profile and appropriate ERM. The ratings
also factor in CCR RE’s strategic importance to the CCR group. The
company contributes material volumes of premium income to CCR on a
consolidated basis and is a means for the group to keep abreast of
developments in the open reinsurance market. CCR RE is integrated
strongly into CCR, sharing resources and leveraging the organisation’s
governance and risk management frameworks.

CCR RE’s balance sheet strength assessment considers its very strong
risk-adjusted capitalisation, as measured by BCAR, which benefits from
significant unrealised gains on assets. The assessment also factors in
CCR RE’s liquid investment portfolio, low dependence on retrocession
support and conservative reserving practices. A.M. Best considers CCR
RE’s financial flexibility to be limited, given the clear segregation of
activities between CCR RE and its shareholder, CCR, which is considered
a partially offsetting factor in the balance sheet strength assessment.
Furthermore, A.M. Best expects CCR RE’s financial leverage to increase
over 2018 should the company successfully execute plans to issue
subordinated debt to third-party investors, although it is expected to
remain at a moderate level.

A.M. Best expects CCR RE to generate robust earnings over the medium
term, driven by investment returns. The life portfolio has been
profitable but the company’s non-life portfolio has produced technical
losses, and a five-year average (2013-2017) non-life combined ratio of
105.8% (as calculated by A.M. Best). Non-life performance improved over
the past two years, as the company has rationalised its underwriting
portfolio and diversified its natural catastrophe exposures, but in the
absence of further improvements, there could be negative pressure on CCR
RE’s ratings.

This press release relates to Credit Ratings that have been published
on A.M. Best’s website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and A.M. Best press releases, please view Guide
for Media – Proper Use of Best’s Credit Ratings and A.M. Best Rating
Action Press Releases.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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