LONDON--(BUSINESS WIRE)--AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” of Life Insurance Corporation (International) B.S.C. (c) (LICI) (Bahrain). The outlook assigned to these Credit Ratings (ratings) is negative.
The rating action follows the improvement of LICI’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), primarily driven by unrealised investment gains during the first six months of 2019.
The ratings reflect LICI’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM). The negative outlooks reflect the pressures on the balance sheet strength and ERM assessments, primarily stemming from the ongoing breach of the company’s regulatory solvency requirement in the United Arab Emirates (UAE).
LICI’s shareholders’ equity increased considerably in the first half of 2019 to BHD 56.3 million (+57% compared with BHD 35.9 million at year-end 2018), boosted by unrealised gains on investments following the recovery of financial markets during the period. As a result, LICI’s risk-adjusted capitalisation has improved, and AM Best expects BCAR to be at least at the very strong level at year-end 2019. Offsetting factors to the balance sheet strength assessment include significant volatility of LICI’s risk-adjusted capitalisation driven by its sensitivity to financial markets, as well as the continuous breach of its regulatory solvency requirement in the UAE.
LICI has had adequate operating performance historically as demonstrated by a five-year average return on equity of 2.4% (2014-2018). Whilst the company reported an after tax loss of BHD 14.2 million in 2018, primarily caused by a downturn in financial markets and interest rate rises, profitability is expected to revert to its historical mean as evidenced by the company reporting a net profit of BHD 14.1 million for the first six months of 2019.
LICI benefits from a niche market position, targeting the Indian expatriate community in the Gulf Cooperation Council (GCC) states by leveraging the Life Insurance Corporation of India group’s strong brand and the portability of its policies back to India.
LICI’s ERM framework is developing but weaknesses persist, with the company appearing to have a reactive rather than proactive approach to managing its risks, particularly evidenced in the area of capital management.
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