LONDON--(BUSINESS WIRE)--AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” from “bbb” and affirmed the Financial Strength Rating of B++ (Good) of Arab Misr Insurance Group S.A.E. (gig-Egypt) (Egypt). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect gig-Egypt’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
The upgrade of the Long-Term ICR reflects the increased level of rating enhancement that gig-Egypt receives from its parent, Gulf Insurance Group K.S.C.P. (GIG). Group integration has improved significantly in recent years, with GIG providing support in areas such as reinsurance purchase, ERM, pricing and reserving, and investment management services. In addition, GIG has demonstrated its commitment to gig-Egypt through continuous capitalisation of retained earnings and funding for capital expenditure.
gig-Egypt’s balance sheet strength is underpinned by risk-adjusted capitalisation, which remained at the strongest level as at year-end 2018, as measured by Best’s Capital Adequacy Ratio (BCAR). Capital requirements are driven by investment risks with approximately one-quarter of the company’s investments held in government treasury bills, with the bulk maturing between three to 12 months. Despite the concentration risk associated with these investments, the liquidity of these assets allows the company to react to changes in market conditions. Regulatory restrictions in Egypt limit the investment opportunities available to gig-Egypt; however, the company’s capital position is sufficiently robust to absorb the higher risk charges associated with assets held within Egypt. Furthermore, the company benefits from low underwriting leverage and has a history of internal capital generation. AM Best expects consolidated risk-adjusted capitalisation to remain at the strongest level over the medium term.
The operating performance assessment of strong considers gig-Egypt’s excellent track record of generating technical and operating profits, reporting a five-year (2014-2018) average combined ratio of 78% despite the challenging economic pressures and intense competition in the domestic market. gig-Egypt’s five-year (2014-2018) return on equity is healthy at 24%, notwithstanding Egypt’s high inflation environment, and is supported by robust investment returns.
The business profile assessment reflects gig-Egypt’s position as the one of the largest private sector insurers in Egypt’s insurance market, with a consolidated non-life market share of approximately 8% at year-end 2018. However, the company’s profile is limited to operating within Egypt and, on a net premium basis, its portfolio is concentrated heavily toward the motor business line.
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