LONDON--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb-” of Al-Sagr National Insurance Company P.S.C. (ASNIC) (United Arab Emirates).
The ratings reflect ASNIC’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
The negative outlooks reflect a material deterioration in ASNIC’s risk-adjusted capitalisation, due to a decline in shareholders’ funds following accounting restatements . Despite the deterioration, risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), narrowly remains at the strongest level. Deterioration of BCAR into the very strong range is likely to lead to a further negative rating action.
The company previously had reported shareholders’ equity of AED 452.8 million at year-end 2018, but, due to the prior-year restatements, shareholders’ equity in 2019 fell by 21.4% to AED 356.0 million. Accounting restatements were broadly driven by material impairments to the company’s private equity holdings, as well as its insurance and related-party receivables. The company’s balance sheet strength assessment also factors the high concentration of the investment portfolio in volatile domestic real estate and equity assets. ASNIC’s liquidity position continues to require support from its overdraft facilities; however, the company has actively reduced its debt in recent years.
ASNIC’s historical operating performance has been subject to volatility, with fluctuations arising from technical and non-technical activities. This translated to a marginal five-year average (2015-2019) return on equity of -2.2%. In 2019, the company reported reduced net profits of AED 3.1 million (2018: AED 16.9 million), driven primarily by losses from an equity accounted associate.
ASNIC has a modest business profile as a mid-tiered insurer in the UAE market, generating gross written premiums of AED 435.5 million in 2019. Despite some product diversification, the company’s primary focus is on the motor and medical lines of business.
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