A.M. Best Affirms Ratings of Societe Centrale de Reassurance.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of "bbb" of Societe Centrale de Reassurance (SCR) (Morocco). The outlook for both ratings is stable.

The ratings reflect SCR's excellent business position and adequate risk-adjusted capitalization. An offsetting factor is its volatile underwriting results.

A.M. Best believes that SCR's business position as Morocco's national reinsurer remains excellent. This is despite the progressive phasing out of SCR's compulsory cession following the signing of a free trade agreement, which is likely to result in a 10% premiums decrease to MAD 2.44 billion (USD 338 million) in 2008. SCR is forced to cease writing compulsory life and health reinsurance in 2008, whereas in non-life, compulsory business will commence to be phased out from 2009 onwards. However, A.M. Best believes that the strong growth in the foreign markets (expected to increase by 25% to MAD 395 million (USD 55 million) in 2008) and the anticipated natural catastrophe business scheme could partially offset the loss of compulsory cession business prospectively.

A.M. Best expects SCR's risk-adjusted capitalisation to remain adequate, factoring higher capital requirements from an increase in invested equities. However, a significant part of SCR's economic capital comprises unrealized gains on investment and is thus subject to volatility of the Moroccan stock markets. A.M. Best will monitor the efficacy of SCR's risk management in light of higher investments in equity. In A.M. Best's opinion, the demanding dividend requirements (approximately 70% of after-tax earnings are distributed to its direct parent, Caisse de Depots et de Gestion, and to the State) continue to limit the potential for earning retention. However, the loss absorption agreement with the Moroccan State protects SCR's balance sheet in the medium term.

SCR's profit before tax (and before allocation to the equalization reserve) deteriorated by 10% to MAD 372 (USD 51 million) in 2007 (with a return on equity decreasing from 24% to 17%) as a result of the strengthening of life mathematical reserves following a change in mortality tables in 2006 and late notification of non-life claims by two large cedants. The company's non-life underwriting results have been volatile in the last five years, which is further highlighted by a deterioration in the combined ratio by 15 percentage points to 103% in 2007. A.M. Best expects SCR's 2008 technical results to improve to a level similar to that of 2006, with a combined ratio below 100% as a result of more stable reserving.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.