AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” (Fair) of Fidelidade Moçambique – Companhia de Seguros, S.A. (Fid Moz) (Mozambique). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Fid Moz’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management (ERM).
Following the acquisition of the majority shareholding of Seguradora Internacional de Moçambique, S.A.’s (SIM) by Fidelidade-Companhia de Seguros, S.A.’s (Fidelidade S.A.) on 31 December 2021, SIM assumed Fidelidade S.A.’s life and non-life operations in Mozambique and the name of the newly consolidated company was changed to Fid Moz.
Fid Moz’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), at year-end 2022. Despite the company’s strong liquidity, capital consumption is driven primarily by asset risk arising from the company’s concentrated investment portfolio, which is weighted toward domestic fixed income securities and real estate. The balance sheet strength assessment also factors in the company’s prudent reserving practices. A partially offsetting factor is Fid Moz’s moderate dependence on reinsurance, although the associated credit risk is managed through the use of a stable reinsurance panel of solid credit quality.
Fid Moz has a track record of solid underwriting results, despite challenging market conditions in Mozambique, as demonstrated by a five-year (2018-2022) weighted average combined ratio and return on equity of 75.2% and 16.0%, respectively. The inclusion of health business since 2022 has driven Fid Moz’s combined ratio above its five-year weighted average to 83.3% as this line of business runs at a higher loss ratio. Health claims expenses have risen recently due to inflation and higher utilisation following the COVID-19 pandemic. Nonetheless, the company’s operating performance is supported by a good balance of earnings between underwriting and investment income. In 2022, Fid Moz reported a net profit before tax of MZN 792 million (USD 12.5 million).
Fid Moz maintains a solid competitive position in its domestic market, with the acquisition solidifying its position as the third-largest insurer in terms of grows written premium (GWP). The merger has enhanced Fid Moz’s product offering, with health business now making up just over a third of GWP in 2022. However, the company’s profile remains limited to Mozambique, which exposes it to very high levels of economic, political, and financial system risk. This presents challenges for the company, although AM Best expects these risks to be mitigated partly by the company’s strong market position and evolving ERM function, which is expected to benefit from the support of its immediate insurance parent, Fidelidade S.A.
Businesswire
