GCR has downgraded MOZRE Moçambique Resseguros, S.A’s (“Moz Re”) national scale claims paying ability rating to BB+(MZ), from BBB-(MZ) previously. The international scale claims paying ability rating has been maintained at B. In addition, the “Ratings Watch” status previously applied to the ratings has been removed, with the outlook converted to “Stable”.
During the May 2012 rating review, management of Moz Re had confirmed that U$S1m in capital was to be raised by way of a rights issue (initially to be completed by 30 June 2012). However, this did not materialise, whilst limited certainty exists regarding potential future capital raising initiatives. Positively, shareholders interest had risen to Mt48.6m at 30 June 2012, from Mt34.9m at FYE11. However, despite this and a rise in annualised international solvency to 38% at 1H F12 (F11: 28%), solvency strain is still evident and is projected at 27% by FYE12.
In addition to the relatively weak capital and solvency position, other considerations previously highlighted by GCR include Moz Re’s high degree of capital risk, with a maximum loss per risk and event of US$150,000. This amounted to 12% of FYE11 capital (at 2011 closing exchange rate). This is further undermined by high debtor balances. In addition, underwriting performance has been highly volatile since inception, directly attributable to significant earned loss ratio movements. Moreover, client concentration is substantial.
Favourable considerations include the fact that Moz Re is the only licensed reinsurer in Mozambique, and forms part of a larger regional reinsurance group (Baobab Re; rated A on a national scale by GCR), providing technical support and leverage with respect to retrocession negotiations. In addition, the investment portfolio is largely secure and liquid.
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