The domestic Ariary currency claims paying ability rating accorded to Assurances Réassurances Omnibranches (“ARO”) has been downgraded to AA- (double A minus), with the rating taken off rating watch. The rating is a reflection of a very high claims paying ability, with strong protection factors. Risk is modest, but may vary slightly over time due to economic and/or underwriting conditions.
A key consideration was Madagascar’s ongoing unstable economic and political environment, following the ousting of former president Marc Ravalomanana in March 2009, and the consequent government administration change. This has contributed to the soft local insurance market, which contains limited scope for growth. Furthermore, the replacement in key ARO personnel linked to the old government has introduced increased uncertainty.
These effects were compounded by the insurer’s diminishing competitive position in light of the entrance of new players, which are backed by the technical and risk capacity of large international companies with established corporate relationships. Givent these factors, it is critical that the insurer does not further weaken its pricing and underwriting disciplines in an attempt to grow volumes.
The rating recognises ARO’s position as the dominant insurer in the Malagasy insurance industry (accounting for over half of industry gross premiums in F09), while government’s 73% shareholding implies a level of financial support.
Corporate and commercial business form the mainstay of ARO’s operations, composed in part of large contracts from mining companies. ARO has recorded sound international solvency margins throughout the review period. Statutory solvency has also measured well above regulatory requirements. Furthermore, ARO evidences a relatively conservative investment portfolio and comfortable levels of liquidity, supported by sizeable government bonds. The offsetting factors are the company’s poor underwriting performance and its reliance on declining investment returns to generate profits.
The Malagasy economy is estimated to have achieved a GDP growth rate of 0.6% in 2010, reverting to positive territory, while reflecting a greater (albeit still impaired) degree of stability. Similarly, ARO’s F10 forecasts anticipate a return to positive GWP growth, with ARO recording above budget growth for the 9 months to 30 September 2010. The insurer has embarked on a more active marketing strategy in order to achieve growth targets, acknowledging the shift in the competitive landscape as new entrants provide alternatives in ARO’s primary markets. In the short term, the insurer is looking to separate the existing composite license into separate life and non-life businesses.
Marc Chadwick https://globalratings.net/uploads/files/April_2011.pdf
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