Fitch Ratings has affirmed MutRe’s Insurer Financial Strength (IFS) rating at ‘A-‘ with a Stable Outlook.
The affirmation reflects the company’s strong capital position, the financial flexibility provided by its committed shareholder base, its consistent strategy and its solid franchise in the French accident and health reinsurance market. The rating remains constrained by the company’s small size and geographical concentration, modest profitability and its exposure to potential pandemic risks not fully covered by the company’s retrocession program. In addition, Fitch believes that the size of the company makes it more susceptible than larger companies to operational risks and to changes in the external operating environment.
According to Fitch’s own risk-based capital assessment, MutRe’s capitalisation remains strong and commensurate with the rating level. The regulatory Solvency I ratio was stable at 195% at end-2011 (194% in 2010).
MutRe’s net profit declined sharply to EUR0.3m in 2011 due to a loss of EUR6.4m on one particular treaty, which experienced an unexpected level of claims. Consequently, underwriting results deteriorated with a net combined ratio of 106% (105% in 2010). The depressed financial markets resulted in significant impairments and realised losses. However, assets are managed relatively cautiously and invested mainly in high-quality fixed-income assets. Fitch expects MutRe’s profitability to remain relatively resilient despite the current low investment return environment.
Key ratings drivers for a downgrade include a failure to improve profitability (as measured, for example, by the three-year average combined ratio not improving to below 105%) or if MutRe was unable to renew contracts. In addition, the rating could be downgraded if there was a sustained decline of the regulatory solvency ratio to below 170%.
An upgrade of the ratings is unlikely in the medium term, given the financial and business profile of the company, in particular its size and lack of significant diversification.
MutRe is a French reinsurance company with shareholder’s funds of EUR116m and gross written premiums of EUR306m in 2011. Major business lines are health (56%), protection (mostly death and disability, 34%) and dependency products (10%). MutRe predominantly offers proportional reinsurance treaties to more than 50 French primary insurers, mostly mutual organisations. The company currently employs 26 staff.
