LONDON--(BUSINESS WIRE)--A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of “bbb+” of Trade Union Cooperative Insurance Company – A Saudi Joint Stock Company (TUCI) (Saudi Arabia). The outlook for all ratings remains stable.
The ratings reflect TUCI’s strong level of risk-adjusted capitalisation, good local business profile and robust underwriting results.
A.M. Best considers that TUCI’s level of risk-adjusted capitalisation has remained at a strong level and is supported by a relatively conservative investment strategy and a reinsurance panel of good credit quality. Risk-adjusted capitalisation is expected to remain at a good level over the medium term as the company targets growth and will be supported by the retention of a significant proportion of future profits. TUCI assesses its own capital position via an internally developed capital model and manages its capital requirements considering both this and local solvency requirements. TUCI’s level of risk management has been developed over recent years, and further enhancements are expected during 2013. Furthermore, TUCI has a strong level of liquidity, with the majority of its funds maintained in short-term investments.
TUCI has defended its competitive position in the Saudi Arabian insurance market over the past year despite a strong level of competition within core lines of medical and motor, and maintained a market share of around 3%. During 2011, TUCI’s gross written premium grew by 31% from the previous year to SR 538 million (USD 144 million). However, conditions have been more challenging for TUCI in the first three quarters of 2012, and the company’s gross written premium for the full year is expected to reflect a more modest level of growth. Although TUCI writes most general lines of business, there is concentration on medical and motor business, which accounted for 81% of gross written premiums and 93% of net written premiums in 2011. Although this business mix is broadly in line with that of the local market, TUCI looks to skew its portfolio in favor of more profitable business niches. Although prospective regulatory intervention is likely to stabilise premium rates for medical and motor business across the market, A.M. Best considers that it is unclear how this will impact the competitive environment for TUCI.
TUCI’s underwriting and overall profitability were both good in 2011, with the company reporting a combined ratio (including unallocated expenses) and return on equity (ROE) of 88% and 7.1%, respectively. This represents an improvement on the prior year. During the first three quarters of 2012, TUCI encountered more challenging market conditions and underwriting profitability has deteriorated. For the first three quarters of the year, TUCI’s combined ratio (including unallocated expenses) increased by 13 percentage points (compared to the same period in the previous year) to 97%. However, results so far in the final quarter of 2012 have shown significant improvement, and the company expects to achieve a good level of overall profitability for the full year.
Over the medium term, there will be positive pressure on TUCI’s ratings if it is able to generate a good and stable level of underwriting profitability, together with the maintenance of a strong level of risk-adjusted capitalisation and the gradual development of the company’s local business position.
A significant reduction in risk-adjusted capitalisation or the failure to maintain a sound level of underwriting profitability will add negative pressure to the ratings and could result in a downgrade.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides an extensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Evaluating Country Risk”; and “Understanding Universal BCAR”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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