AM Best has removed French state-owned reinsurer Caisse Centrale de Reassurance (CCR) from being under review with negative implications and affirmed its financial strength rating of A++.
However, the rating agency has warned the prospect of a future upgrade for the carrier is unlikely in the future with the rating outlook negative.
AM Best placed CCR’s rating under review at the end of last year. It said at the time that its rating action reflected negative developments regarding the Eurozone sovereign debt crisis, with the continued deterioration of the sovereign creditworthiness and the negative economic outlook for the region having put pressure on France’s sovereign rating.
CCR benefits from an explicit unlimited guarantee on its state-backed business, which is factored in its rating.
AM Best said recent developments and policy actions had brought more stability across the Eurozone, resulting in its latest rating action.
Nevertheless underlying concerns remain with regards to the weak economic conditions and fiscal imbalances that still exist in the area, it added.
It noted CCR’s ratings fundamentals remain sound with only a marginal investment exposure to European peripheral countries and expects the company’s risk-adjusted capitalisation to stay at an excellent level in the next few years.
However, the negative outlook reflects the continued pressures on the creditworthiness of France that ultimately could impact CCR via the guarantee provided.
The rating agency expects CCR’s 2011 performance to be negatively impacted by the Thailand floods and New Zealand earthquake.
However, it added that despite the high volatility of natural catastrophe and other lines of business written by CCR the impact of a catastrophic event on CCR’s balance sheet can be effectively absorbed by its equalisation and other special reserves, and should the latter prove insufficient, by the unlimited state guarantee.
CCR stopped writing business in Thailand and across the wider Asian market at the end of last year, following the flooding activity. The industry’s insured losses from this catastrophe are currently estimated to be in the region of between $16bn and $18bn, with approximately 90% of this total believed to be ceded offshore to Japan and Europe.
In January rival rating agency Standard & Poor’s cut CCR’s financial strength rating by one notch to AA+, meaning the carrier lost its prestigious AAA grade.
When S&P had announced a month earlier that it was considering a possible downgrade of the carrier’s rating as part of a review of 15 European insurers, CCR reacted angrily.
At the time it issued a statement which said S&P’s decision was not related to “any CCR-specific circumstances” and added its solvency remained “unchanged and particularly strong”.