LONDON--(BUSINESS WIRE)--A.M. Best has removed from under review with positive implications and upgraded the Financial Strength Rating to B (Fair) from C (Weak) and the Long-Term Issuer Credit Rating to “bb” from “ccc+” of Al Ittihad Al Watani (L’Union Nationale) Société Générale D’Assurances du Proche Orient, sal (Al Ittihad) (Lebanon). The outlook assigned to these Credit Ratings (ratings) is stable.
The rating upgrades reflect Al Ittihad’s strengthened risk-adjusted capitalisation following its acquisition by Nasco Insurance Holding SAL, a member of Nasco Insurance Group Limited (Nasco), and the company’s strategic decision to place its Lebanon operations into run-off and focus on business originating in the United Arab Emirates (UAE), which is expected to lead to an improvement in operating performance. The rating upgrades also reflect the company’s association with Nasco and the support provided by the group. A.M. Best notes Al Ittihad derives benefit from being a member of a larger and more diversified group both in terms of balance sheet strength and management expertise.
In December 2016, Nasco acquired a 94% stake in Al Ittihad. At the time, there was uncertainty surrounding Al Ittihad’s future strategic direction and the company presented a significantly depleted capital base, which had been eroded by continuously poor performance. As part of the acquisition, Nasco injected LBP 15 billion (USD 10 million) into Al Ittihad to clear accumulated losses from prior years, strengthening Al Ittihad’s risk-adjusted capitalisation and improving its liquidity. During 2016, Al Ittihad also paid off an outstanding overdraft of LBP 15 billion with proceeds from the sale of an investment property, which reduced the company’s investment risk and debt leverage. Going forward, A.M. Best expects Al Ittihad’s risk-adjusted capitalisation to be supported by internal capital generation, as the strategic decisions taken by the new management team are expected to result in improved profitability.
Al Ittihad’s operating performance has been weak over recent years, with losses reported in four of the past five years, primarily due to poor performance in Lebanon and reserve deterioration related to the company’s Kuwaiti run-off. At the beginning of 2017, the company put its Lebanese portfolio into run-off, and focused its operations on business originated in the UAE, following the Nasco group’s decision to transfer established underwriting agency business in the UAE to Al Ittihad. This is expected to double Al Ittihad’s premium base and contribute to restoring the company’s technical profitability. A.M. Best will continue to monitor closely the impact of the Lebanese and Kuwaiti run-off portfolios on Al Ittihad’s performance.
Whilst Al Ittihad’s regional franchise has diminished following the decision to place the Lebanese business into run-off, A.M. Best believes this decision will allow the company to focus on growing its profile in the UAE and reduce its exposure to the political and economic risk associated with operating in Lebanon.
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