AM Best has assigned a Financial Strength Rating of B (Fair) and a Long-Term Issuer Credit Rating of “bb+” (Fair) to Compagnie Algérienne des Assurances (CAAT) (Algeria). The outlook assigned to these Credit Ratings (ratings) is stable.
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 (ERM).
CAAT’s strong balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which is expected to remain comfortably at the strongest level, supported by low net underwriting leverage and good earnings retention. 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. Further partially offsetting factors in the balance sheet strength assessment are the high exposure to credit risk from insureds and CAAT’s important dependence on reinsurance.
CAAT has a track record of strong operating performance underpinned by robust underwriting results and increasing investment income, with profit before tax ranging from DZD 2.9 billion to DZD 3.3 billion (USD 23.8 million – USD 28.0 million) between 2016 and 2020. Over that period, the company produced a solid five-year weighted average return-on-premium of 25.8% and return-on-equity of 11.0% (as calculated by AM Best). CAAT’s conservative approach to underwriting and comprehensive reinsurance programme have resulted in a consistently strong technical performance, returning a five-year (2016-2020) weighted average combined ratio of 84.1%. AM Best expects prospective underwriting performance to remain robust, and support a strong operating performance over time.
With gross written premium (GWP) of DZD 24.9 billion (USD 190 million) in 2020, CAAT has a good competitive position in the Algerian market, as the second largest insurer based on domestic GWP, and benefits from a well-developed distribution network. The company’s established market position is based on its historical role as the provider of transport insurance in the Algerian market. Although CAAT has diversified its book by class of business over time, it maintains a focus on commercial and industrial property business, and the business profile remains geographically concentrated, with all insurance business currently sourced domestically.
AM Best considers CAAT’s ERM framework to be at an early stage of development. AM Best expects the company’s risk management capabilities to improve following the recruitment of a dedicated chief risk officer in 2020, which is also expected to advance the implementation of the ERM framework. However, the company faces considerable challenges represented by the concentration of its business and assets in Algeria, where the company is domiciled, and the resulting significant exposure to elevated economic, political and financial system risks.
This press release relates to Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
Alex Rafferty, ACA
Associate Director, Analytics
+44 20 7397 0312
Manager, Public Relations
+1 908 439 2200, ext. 5159
Ghislain Le Cam, CFA, FRM
+44 20 7397 0268
+1 908 439 2200, ext. 5644