S&P Global Ratings today affirmed its ‘AA’ long-term insurer financial strength and issuer credit ratings on Caisse Centrale de Reassurance (CCR) and raised its ratings on CCR Re to ‘A’ from ‘A-‘. The outlook for both companies is stable.
CCR Re describes itself as a medium-sized reinsurer with a longstanding franchise in traditional property, casualty and life & health reinsurance, as well as in some particular specialty lines (credit, marine, aviation & space, terrorism), in France and abroad. Parent company, CCR, which holds 100% of CCR Re, is a state-owned reinsurer that provides unlimited covers against natural disasters, terrorist attacks and other extreme risks in France, with the guarantee of the French state.
S&P notes that CCR Re has reported steady improvement in its technical results over the past two years. S&P now considers it to be core to the group, rather than highly strategic. The rating agency equalises its ratings on core subsidiaries with the unsupported group credit profile (GCP) – in the case of CCR group, this is ‘a’.
CCR Re’s prudent underwriting has enabled it to improve its technical results – its net combined ratio stood at 98.1% at the end of 2019. Furthermore, CCR Re has progressively widened its geographical presence and increased its diversification between life and non-life lines of business.
S&P anticipated that CCR Re may be affected by COVID-19-related claims in 2020, but if there is a global economic recovery, it could achieve a combined ratio below 98% in 2021-2022.
CCR Re generates business globally, of which most stems from Europe, Asia, Canada, the Middle East, and North Africa. Its business contributed approximately 36% of the group’s gross premium written in 2019, up from 33% in 2016.
Given CCR Re’s growing contribution to group business and overall strategy, S&P expects the group to support the subsidiary in times of stress. It has demonstrated this in the past, when CCR Re experienced significant losses. CCR Re is not state-backed, so the group support came in the form of reassessment of exposures.
CCR Re’s close operational and financial integration with the rest of the group further supports S&P’s assessment of CCR Re’s group status. The group’s two entities share the same administrative functions and risk management framework. Costs are allocated across CCR Re and the state-guaranteed business. CCR Re also utilises both the group’s name and logo and is therefore closely linked to the reputation of the group.
The company has set an internal and regulatory target capital level consistent with the group’s targets. Furthermore, S&P believes the parent would downstream funds to CCR Re if the subsidiary fails to achieve regulatory or internal capital targets. The base case assumes that CCR and CCR Re will maintain a robust capital buffer at the ‘AAA’ level in 2020-2021.
S&P equalises its long-term rating on CCR with the unsolicited long-term sovereign rating on France (AA/Stable/A-1+). The international credit rating agency believes the reinsurer shares an integral link with the French government and that there is an almost-certain likelihood of government support if CCR experiences any financial distress.
CCR’s government-guaranteed businesses are stated by law and include natural catastrophes, nuclear, terrorism, and other exceptional risks. The details of the law’s implementation were reaffirmed in an agreement between the government and the company in 2017. The government has to provide financial assistance to CCR when claims in one accounting year exceed 90% of the equalisation and special reserve built up for this type of business.
The French government recently announced a special plan to aid French businesses, especially SMEs, to continue their activities and remain afloat despite the uncertainty created by current COVID-19 pandemic. This plan includes setting up a public reinsurance programme, guaranteed by the state, for trade credit insurance, to the tune of EUR10bn ($10.8bn). The government has charged CCR with implementing this scheme. S&P considers that this confirms the critical role CCR plays for the government and for the national economy.
S&P says that the stable outlook on CCR mirrors the stable outlook on France. This reflects S&P’s expectation that the company will maintain its critical role to and integral link with the French government for at least the next two years.
The stable outlook on CCR Re incorporates S&P’s view of the group’s stable underlying credit quality before taking into account government support.