LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of Union Insurance Company P.J.S.C. (Union) (United Arab Emirates). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect Union’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
Union’s balance sheet strength is underpinned by improving risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The improvement in the BCAR score is due in part to the de-risking of the company’s 2018 net underwriting profile, stemming from a decrease in net written premium (NWP) by 17.3%, following a comprehensive review by management to withdraw from certain underperforming accounts. Consequently, Union has materially reduced its exposure to credit risk through the reduction in total debtors by 23.0%, to AED 466.7 million in 2018 from AED 606.4 million in 2017. Offsetting factors include the company’s material and concentrated exposure to real estate and equity investments, increasing reinsurance dependence, high debtor balances and use of leverage for investments. Management has taken strategic measures during 2019 to further strengthen the quality of its balance sheet. AM Best notes that the regulatory solvency position, as of year-end 2018, is fully compliant with the Insurance Authority’s requirements.
Union’s adequate operating performance assessment benefits from a track record of solid underwriting profitability, demonstrated by a five-year (2014-2018) weighted average combined ratio of 94.2%. However, throughout the last four years (2015-2018), Union has reported material unrealised losses ranging from AED -10.1 million to AED -25.3 million, which have more than offset the good technical performance, resulting in capital and surplus being eroded to AED 300.3 million in 2018 from AED 357.4 million in 2014. The poor investment performance has primarily emanated from a single large equity holding.
Union has successfully grown its business profile while maintaining solid underwriting performance. The company has become the seventh largest primary insurer in the United Arab Emirates by gross written premium, writing a diversified mix of life and non-life lines of business and benefiting from a broad distribution network.
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