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 Arab Orient Insurance Company (gig-Jordan) (Jordan). The outlook of these Credit Ratings (ratings) remains negative.
The ratings reflect gig-Jordan’s balance sheet strength, which A.M. Best categorises as strong, as well as 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 outlooks reflect the execution risk associated with the company’s profitability targets.
gig-Jordan’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which remained at the strongest level as at year-end 2017. In November 2017, gig-Jordan received a loan from GIG that boosted its local solvency position. A.M. Best expects consolidated risk-adjusted capitalisation to remain at the strongest level in the short-to-medium term. Offsetting factors to the balance sheet strength assessment include gig-Jordan’s high dependence on reinsurance and weak capital management capability. The assessment also considers gig-Jordan’s exposure to high levels of economic, political and financial system risk through operating exclusively in Jordan, although A.M. Best notes that this is driven partly by regulatory constraints.
Prior to 2016, gig-Jordan had historically returned underwriting profits, generating combined ratios below 90%, with operating earnings supplemented by stable investment returns. The company’s five-year (2013-2017) average combined ratio of 98.1% includes elevated combined ratios for 2016 and 2017, following a correction to the financial statements at each respective year end. Additionally, the company suffered technical losses on its underlying portfolio in 2017, stemming from poor risk selection and underpricing on its medical business line. The accounting correction was a one-off adjustment and will not impact financial results going forward, and management is taking strong actions to improve underwriting performance through focusing on tightening underwriting discipline, and exiting unprofitable segments. A.M. Best anticipates that it will take a period of time for the full extent of management actions to translate into long-term improvement in operating performance.
The business profile assessment reflects gig-Jordan’s leading position in its domestic insurance market, with a consolidated market share of 16% as at year-end 2017. However, gig-Jordan operates exclusively in Jordan, and its portfolio continues to be heavily concentrated toward medical and motor risks, which is a common characteristic in the region. gig-Jordan appointed a new chief executive officer during the first quarter of 2018, and A.M. Best will continue to monitor any strategic developments under the new leadership team.
Whilst gig-Jordan has developed an ERM framework, given the material financial and underwriting control failures the company experienced during the past 18 months, A.M. Best has concerns regarding risk management practices and the risk culture within the company. The company has made a number of enhancements to its processes and framework in 2017 and 2018; however, further time is required for these improvements to be embedded throughout the company.
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