LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of Union Insurance Company P.S.C. (Union) (United Arab Emirates). The outlook on the FSR remains stable, whilst the outlook on the Long-Term ICR remains positive.
The Credit Ratings (ratings) reflect Union’s strong technical profitability, robust risk-adjusted capitalisation and solid business profile. An offsetting rating factor is the company’s concentrated investment portfolio, which has led to earnings and capital volatility over recent years. The positive outlook on the Long-Term ICR reflects A.M. Best’s expectation that management action, aimed at de-risking Union’s balance sheet, will lead to improved risk-adjusted capitalisation and more stability in earnings, which may drive a positive rating action.
Union has demonstrated a track record of reporting strong technical results since a change of management during late 2012. The new management team has been successful in executing its ambitious plans for achieving profitable underwriting growth, despite the prevailing competitive market conditions in the United Arab Emirates (UAE). However, overall earnings have deteriorated during recent years, driven by unrealised losses from the company’s concentrated investment portfolio, and in particular from its more volatile asset holdings of equities and real estate. Pre-tax operating losses of AED 4.7 million (USD 1.3 million) and AED 7.4 million (USD 2.0 million) were reported for 2015 and the first nine months of 2016, respectively. A pre-tax loss is anticipated to be reported for full year 2016; however, earnings are expected to improve in 2017 as the company seeks to halt the recent trend of investment losses.
The company’s risk-adjusted capitalisation, whilst weakened during 2015 and the first nine months of 2016, remains at a strong level. The deterioration was driven by a combination of underwriting growth and a fall in capital and surplus following operating losses. A.M. Best anticipates Union’s prospective capital adequacy to be managed to an adequate level, with retained earnings supporting anticipated underwriting growth.
Union’s domestic market share has strengthened notably over the past three years, with the company achieving a top five position amongst UAE-listed insurers. Union’s life segment, in particular, has experienced rapid growth since the company obtained a license to commence underwriting life business in 2013. Despite management’s successful execution of its business plan to date, the competitive market in the UAE presents significant challenges for the company to achieve its underwriting growth targets whilst maintaining robust profitability. The company’s underwriting portfolio, whilst comprises a balance of non-life and life business, remains largely concentrated in the UAE.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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