LONDON--(BUSINESS WIRE)--AM Best has revised the outlook to stable from negative for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” of Jordan Insurance Company Plc. (JIC) (Jordan). The outlook of the FSR remains stable.
The Credit Ratings (ratings) reflect JIC’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM).
The revision of the Long-Term ICR outlook to stable follows an improvement in risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), due to the divesture of capital-intensive investments and the suspension of dividend payments in 2018 and 2019. Although the company’s investment portfolio remains skewed toward real estate and equity exposures, which attract high capital charges in the BCAR model, further divestures from these asset classes are expected in the near term, which, if successful, should further strengthen the company’s risk-adjusted capitalisation. Offsetting factors in the balance sheet strength assessment include the company’s weak liquidity and increased financial leverage, driven by overdrafts and loans contracted to fund the company’s regulatory capital requirements for its branch in the United Arab Emirates (UAE). The assessment also considers JIC’s limited asset-liability management capability and its marginal regulatory solvency margin in Jordan.
JIC’s operating performance is adequate over the underwriting cycle, as illustrated by a five-year average (2014-2018) return on equity (ROE) of 2.8%. In 2018, the company benefited from robust earnings from its operations in the UAE, helped by the introduction of higher motor tariffs. JIC is expected to maintain a low single-digit ROE over the medium term.
JIC has a good competitive position within Jordan, where it is ranked No. 2 based on 2018 gross written premiums. However, Jordan’s insurance market is relatively small by international standards. The company benefits from some geographic diversification, with just above 20% of its premium emanating from the UAE in 2018.
JIC has demonstrated solid controls and adequate risk management in respect of its underwriting operations. However, deficiencies in the management of investment, liquidity and capital risks have a negative impact on AM Best’s assessment of JIC’s ERM.
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