LONDON--(BUSINESS WIRE)--AM Best has assigned a Financial Strength Rating of B- (Fair) and a Long-Term Issuer Credit Rating of “bb-” to National Insurance Company (NIC) (Jordan). The outlook assigned to these Credit Ratings (ratings) is positive.
The ratings reflect NIC’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
The positive outlooks reflect AM Best’s expectation that NIC’s risk-adjusted capitalisation will improve from 2019 onward, benefiting from internal capital generation. In addition, AM Best views positively recent actions taken by the company’s management to improve the reserving adequacy of its motor book and reduce its asset risk exposure.
The company’s balance sheet strength assessment is underpinned by very strong risk-adjusted capitalisation in 2018, as measured by Best’s Capital Adequacy Ratio (BCAR), which is expected to return to the strongest level. Whilst the company’s asset base is exposed heavily to the high financial system risk in Jordan, its investment portfolio is weighted toward liquid asset classes such as bank deposits and fixed-income securities. In the medium term, the company plans further divestment of some of its real estate holdings, which in 2018, accounted for approximately 12% of its capital base. Offsetting factors in AM Best’s balance sheet strength assessment include the company’s small capital base and moderate dependence on reinsurance for large risks.
NIC has generated positive operating earnings over recent years, with the five-year (2014-2018) weighted average combined ratio of 94.3% and return on equity of 8.8%. However, its underwriting results deteriorated markedly in 2018, due to the weak performance of its motor and medical segments, which contributed to the company reporting a combined ratio of 110.3% and a net operating loss of JD 0.9 million. NIC’s management has taken steps to reverse this trend by pruning its underwriting portfolio and strengthening its reserves, which AM Best expects to support technical profits going forward. At half-year 2019, the company reported improved performance with profit after tax of JD 0.4 million and a combined ratio of approximately 98%.
AM Best’s assessment of NIC’s business profile as limited reflects its relatively small size and concentration to Jordan’s intensely competitive insurance market, where it maintains a 3.6% market share (based on total market premiums in 2018). NIC’s risk management framework is developing, and AM Best views its risk management capability to be marginal relative to its risk profile.
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