AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Compagnie Algérienne des Assurances (CAAT) (Algeria). The outlook of 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.
CAAT’s balance sheet strength assessment reflects the company’s 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 risk prevailing in Algeria. Other offsetting factors in the balance sheet strength assessment include the high exposure to premium debtors and CAAT’s increasing reliance on reinsurance, which amounted to 58% of premium ceded in 2021.
CAAT has a track record of strong operating performance, with a five-year (2017-2021) weighted average return on premium of 26.9% and return on equity of 10.8%. Operating results have been underpinned by strong and stable technical results, demonstrated by a five-year (2017-2021) weighted average combined ratio of 86.5%. CAAT’s conservative approach to underwriting and comprehensive reinsurance programme have resulted in consistently strong technical performance. Results are supplemented by good investment returns, with a five-year average investment yield of 3.3%. AM Best expects prospective underwriting profitability to remain robust and supportive of a strong operating performance assessment over time.
CAAT’s business profile assessment reflects its good competitive position in the Algerian insurance market and its well-developed distribution network. In 2021, CAAT underwrote gross written premium (GWP) of DZD 25.4 billion (USD 183 million), with the company remaining the second-largest domestic insurer based on GWP. The company’s established market position is based on its historical role as the provider of transport insurance in its domestic market. CAAT has diversified its book by class of business over time, although it maintains a focus on commercial and industrial property business. A limiting factor in the assessment is CAAT’s geographically concentrated business profile, with all insurance business currently 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 the company is domiciled, and the resulting significant exposure to elevated economic, political and financial system risks.