LONDON--(BUSINESS WIRE)--AM Best has upgraded the Financial Strength Rating to B+ (Good) from B (Fair) and the Long-Term Issuer Credit Rating to “bbb-” from “bb+” of Al Ittihad Al Watani (L’Union Nationale) Société Générale D’Assurances du Proche Orient, sal (Al Ittihad) (Lebanon). The outlook of the Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect Al Ittihad’s balance sheet strength, which AM Best categorises as very strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM). The ratings also factor in rating enhancement from Bankers Assurance S.A.L. (Bankers), given Al Ittihad’s strategic importance to Nasco Ultimate Holding Limited (Nasco) as an underwriting platform in the United Arab Emirates (UAE), together with the technical support provided by Bankers to Al Ittihad.
The upgrades reflect a material strengthening of Al Ittihad’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which improved to a level comfortably within the assessment category of strongest in 2018, following a revision of its reinsurance structure and reduction in net probable maximum loss estimates. The balance sheet strength assessment also factors in the company’s highly liquid and conservative investment portfolio, weighted toward cash and deposits in Lebanon and the UAE. Exposure to Lebanon, which presents elevated levels of economic, political and financial system risks, remains a partially offsetting factor to the balance sheet strength assessment.
Al Ittihad has a recent history of marginal operating performance stemming from losses arising in Lebanon and adverse loss experience in its Kuwaiti run-off portfolio. However, actions taken by management to rationalise the portfolio and focus on profitable business segments in the UAE has resulted in improved performance in 2017 and 2018, with combined ratios decreasing to approximately 95% for both years.
Al Ittihad’s business profile assessment reflects its market position as a midtier player in the highly competitive UAE market, as well as its solid distribution capabilities, leveraging the Nasco group’s brokerage network. Whilst Al Ittihad’s regional presence has diminished over the past years, more recently following management’s decision to place its Lebanese portfolio into run off, the transfer of established portfolios of Nasco agency business in the UAE to the company in 2017 provided it with increased diversification by line of business. It has also resulted in notable growth, with gross written premium reaching LBP 120.5 billion (USD 80.0 million) in 2018, compared with LBP 75.2 billion (USD 50.9 million) in 2016.
Al Ittihad’s ERM assessment reflects steps taken by management to strengthen the risk management and governance frameworks in 2017 and 2018, with the assistance of its sister company, Bankers. However, AM Best considers that the framework is in the early stages of development, and that it will take time for the company to embed it fully in its operations.
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