LONDON--(BUSINESS WIRE)--A.M. Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Arab Orient Insurance Company (gig Jordan) (Jordan). The outlook assigned to these Credit Ratings (ratings) is negative.
The ratings reflect gig Jordan’s balance sheet strength, which A.M. Best categorises as strong, its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM). The ratings also factor in the financial strength of gig Jordan’s parent company, Gulf Insurance Group K.S.C.P. (GIG), due to its strategic importance to the group. The negative outlook reflects gig Jordan’s declining operating performance, which, if not rectified in 2018, may lead to negative rating action.
In June 2017, gig Jordan’s ratings were placed under review with negative implications, following the correction of an IT system calculation error that impacted operating performance in 2016 and the first-quarter 2017 performance. This consequently led to a significant decrease in the company’s regulatory solvency position. In November 2017, gig Jordan received a loan from GIG, which boosted its solvency level, and as a result, the company is expected to meet regulatory capital requirements at year-end 2017.
gig Jordan’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed as strongest. Offsetting factors to the balance sheet strength include investment concentration in Jordan, although A.M. Best notes that this is partly driven by regulatory constraints, and weak capital management capability. The assessment also factors in an important reliance on reinsurers, which under a stressed scenario increases capital requirements significantly.
Historically, gig Jordan has demonstrated sound underwriting profitability, generating combined ratios below 90%, and stable returns stemming from a conservative investment strategy. However, during the fourth-quarter 2016, the company highlighted an IT system calculation error that resulted in a significant correction to the financial statements at year-end 2016 and further in 2017. In addition, 2017 performance has been subject to worse-than-expected claims experience on the medical portfolio.
In 2016, gig Jordan consolidated its leading position in Jordan, achieving 6% growth in gross written premium to JOD 114 million, with its market share rising marginally to 19%. The company’s portfolio continues to be heavily concentrated toward medical and motor risks, which is a common characteristic in the region; together these lines accounted for 83% and 93% of the company’s gross and net written premium in 2016, respectively.
Whilst gig Jordan has developed an ERM framework, A.M. Best has concerns regarding its effectiveness and the risk culture within the company, given the significant oversight that has arisen during the past year. Jordan is considered to have elevated levels of country risk, and despite the company’s track record of navigating this difficult operating environment, A.M. Best continues to monitor the impact these external factors may have on the company’s operations.
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. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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