LONDON--(BUSINESS WIRE)--A.M. Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of ARABIA Insurance Company – Jordan (AIC-J) (Jordan).
The Credit Ratings (ratings) reflect AIC-J’s balance sheet strength, which A.M. Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also factor in rating enhancement from AIC-J’s parent, ARABIA Insurance Company s.a.l. The negative outlooks reflect pressures on the company’s balance sheet strength assessment that stem from its deteriorating risk-adjusted capitalisation, in addition to its declining regulatory solvency position.
Whilst the company’s risk-adjusted capitalisation is at the strong level, as measured by Best’s Capital Adequacy Ratio (BCAR), it has been trending downward over the past few years, primarily as a result of an onerous dividend policy, with the company distributing on average 79% of its modest profits to shareholders between 2013 and 2017. Moreover, capital adequacy has been impacted by the company’s growing underwriting operations, with net written premium (NWP) increasing at an annual compound rate of 8.5% over the past five years. A.M. Best expects prospective capital adequacy to be driven by the company’s ability to generate and retain sufficient earnings to support its strategic initiatives.
AIC-J has a track record of generating positive operating earnings, and over the past five years, the company has reported an average return on equity of 4.5% (4.2% in 2017). Underwriting returns have been limited, as illustrated by a five-year average (2013-2017) combined ratio of 100.1%, and are expected to remain modest due to stiff competition in Jordan’s insurance market, which directly impacts AIC-J as a result of its marginal market position. Consequently, earnings have historically been weighted toward investment income, providing a relatively stable, albeit modest, source of revenue.
AIC-J’s limited business profile stems from its small market share of approximately 3.6%, in an overcrowded and fragmented market. AIC-J’s underwriting portfolio is dominated by motor business on a NWP basis, as the remaining lines of business are heavily reinsured. Gross written premium increased by 9.7% to JD 22.2 million in 2017 driven by growth of the motor comprehensive and medical books.
AIC-J remains exposed to the heightened levels of economic, political, and financial system risk associated with operating in Jordan. Despite the company’s track record of successfully navigating these challenging conditions, A.M. Best continues to monitor the impact these external factors may have on the company.
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.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.