LONDON--(BUSINESS WIRE)--A.M. Best has downgraded the issuer credit rating (ICR) to “bb” from “bb+” and affirmed the financial strength rating (FSR) of B (Fair) of Al Ittihad Al Watani (L’Union Nationale) Société Générale D’Assurances du Proche Orient, sal (Al Ittihad) (Lebanon). The outlook for the ICR remains negative, whilst the outlook for the FSR has been revised to negative from stable.
The rating action reflects the deterioration of Al Ittihad’s operating performance over recent years, which in turn has weakened its risk-adjusted capitalisation. Additionally, the company’s business profile has been decreasing since 2012, and its risk management capability has not improved. The negative outlook reflects the uncertainty prevailing over the company’s business strategy and operating performance.
Although Al Ittihad’s capital and surplus increased in 2013 to LBP 68.9 billion (USD 46.2 million) from LBP 38.8billion (USD 25.8 million) in 2012 following a capital injection and the revaluation of fixed assets, its risk-adjusted capitalisation remains under pressure.
Furthermore, the company’s operating performance has remained weak since the loss of its Kuwaiti license in January 2012. Al Ittihad recorded a net loss of LBP 4.4 billion (USD 3.0 million) in 2013, against a loss of LBP 7.2 billion (USD 4.8 million) in 2012. The 2013 net loss primarily stemmed from poor underwriting performance in Lebanon and adverse claims development from the company’s Kuwaiti operations, which were not offset by the sound technical results recorded in the United Arab Emirates (UAE). In 2014, improved underwriting performance is expected to result in Al Ittihad reporting a marginal profit.
Going forward, the company’s underwriting performance is expected to remain constrained due to intense competition from its key markets of the UAE and Lebanon. Subsequent to its withdrawal from the Kuwaiti market, which followed the exit from Saudi Arabia in 2009, Al Ittihad’s regional franchise has been in decline.
The ratings of Al Ittihad also factor in the high financial system and political risks associated with operating within Lebanon and the poor level of development of the company’s risk management framework.
Further negative rating actions could occur if management is unable to return the company to profitability in the medium term or if there is a material reduction in risk-adjusted capitalisation. Conversely, positive rating actions could occur if Al Ittihad demonstrates a prolonged period of positive underwriting results and a stronger level of risk-adjusted capitalisation.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilised:
• Catastrophe Analysis in A.M. Best ratings
• Evaluating Country Risk
• Risk Management and the Rating Process for Insurance Companies
• Understanding the Universal BCAR
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