LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of ARABIA Insurance Company s.a.l. (AIC) (Lebanon). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect AIC’s balance sheet strength, which A.M. Best categorises as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The company’s risk-adjusted capitalisation as measured by Best’s Capital Adequacy Ratio (BCAR), was at a very strong level in 2016. However, based on 2017 preliminary results, A.M. Best expects risk-adjusted capitalisation to strengthen to the strongest level, primarily due to improved internal capital generation and the consolidation of Arabia Falcon Insurance Company. AIC has demonstrated good financial flexibility in recent years, successfully restructuring group operations to meet evolving and more stringent regulatory requirements. An offsetting factor is the rising level of financial leverage, which may limit prospective financing options available to the company. The company’s balance sheet strength assessment also factors AIC’s invested asset base, which is well-diversified across the Middle East.
Operating performance has been a source of negative rating pressure in recent years, primarily driven by weak underwriting performance. In 2017, AIC underwent a strategic shift to enhance performance through a stricter underwriting approach and cost efficiencies. As a result, the company is expected to report for 2017 its best underwriting performance over the past four years. Earnings have been supported by modest investment income over the period 2012–2016, yielding an average of 4.2% (including gains and losses).
AIC has one of the most geographically diverse underwriting portfolios in the Middle East, although its position in key markets remains relatively small. Despite the high levels of competition across the region, AIC’s consolidated gross written premiums grew by 9.7% in 2017 to approximately USD 199 million. Motor remains AIC’s dominant line of business, accounting for approximately 64% of total net written premiums, and is one of the most competitive sectors across the region.
The company’s ERM framework is considered appropriate for its risk profile; however, regulatory risk is considered one of the greatest threats to the company’s current operating model. A.M. Best expects AIC to continue to develop its ERM processes in order to remain relevant with rapidly changing regulatory requirements in its operating jurisdictions. AIC is headquartered in Lebanon, exposing its operations to heightened levels of economic, political and financial system risk.
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