A.M. Best Removes Ratings of Oman Insurance Company (PSC) From Under Review; Assigns Negative Outlook

LONDON--(BUSINESS WIRE)--A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of Oman Insurance Company (PSC) (OIC) (United Arab Emirates). The ratings have been assigned a negative outlook.

The ratings reflect OIC’s excellent underwriting performance and leading business position in the United Arab Emirates (UAE) insurance market. An offsetting factor is the exposure to variability of the company’s prospective risk-adjusted capitalisation, also in relation to the still high concentration of the financial assets portfolio.

The negative outlook reflects the increased control that Mashreqbank psc (the major shareholder of OIC, with 63.65% of shares) has over OIC following the appointment of the new board. Mashreqbank has a lower rating than OIC, and until now it had no representation on the insurance subsidiary’s board. However, the new seven-person board includes two direct representatives plus one non-executive director of Mashreqbank, and one additional representative of Mashreqbank’s main shareholders. A.M. Best believes that this reduces the level of independence of OIC.

Furthermore, future decisions involving the board, such as dividend distribution or investment strategy, could add downward pressure to OIC’s risk-adjusted capitalisation, which A.M. Best believes is adequate at the present time but exposed to a potential deterioration to a level not supportive of the company’s current ratings.

OIC remains one of the leading local insurers in the UAE (with a market share in the range of 15%). OIC has a good product diversification for both non-life and life businesses, whereas it is also pursuing geographical diversification, expanding its operations to Qatar and Oman.

In A.M. Best’s opinion, OIC’s underwriting profitability is excellent with technical profits increased to AED 317 million (USD 87 million) in 2009, while the non-life combined ratio improved to 71%. On the non-technical side, the devaluation of real estate investments impacted the net result, which decreased to AED 190 million (USD 52 million), though it remains very good.

A.M. Best believes that the company’s risk profile remains overexposed to investment risk, specifically market risk, due to the high, albeit decreasing, concentration in equity investments (accounting for approximately 50% of OIC’s overall financial assets).

A.M. Best acknowledges that the company is moving in the right direction rebalancing its portfolio toward less volatile assets; however, A.M. Best expects this process to be completed in approximately two to three years, while the company’s risk-adjusted capitalisation remains exposed to the volatility of capital markets.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life & Non-Life Insurance Edition. Additional methodologies that may apply can be found at www.ambest.com/ratings/methodology.

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.