AM Best Affirms Credit Ratings of Arab Orient Insurance Company

LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of Arab Orient Insurance Company (gig-Jordan) (Jordan). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect gig-Jordan’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 ratings also factor in rating enhancement from gig-Jordan’s parent company, Gulf Insurance Group K.S.C.P. (GIG), reflecting the strategic importance of gig-Jordan to the group.

gig-Jordan’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), that is expected to remain at the strongest level over the medium term. An offsetting factor to the balance sheet strength assessment is gig-Jordan’s high dependence on reinsurance. The assessment also considers gig-Jordan’s exposure to high levels of economic, political and financial system risk from operating exclusively in Jordan.

The company’s technical performance has improved in recent years, following a change in its management team that led to improved risk selection and a more balanced medical insurance portfolio. This translated into a healthy combined ratio of 88.3% in 2019. The company’s five-year (2015-2019) average combined ratio of 101.4% is negatively skewed by poor performance in 2016 and 2017, following accounting adjustments in each year, as well as underwriting losses suffered on large corporate medical accounts (AM Best's combined ratio calculation includes a minor reallocation of expenses compared to the prior year analysis). AM Best expects underwriting profitability to be maintained at levels similar to that achieved in 2019 over the medium term. Overall operating performance is supported by relatively modest but stable investment income, with the company returning an investment yield (including capital gains) of 4.8% in 2019, above its five-year average (2015-2019) of 3.5%.

gig-Jordan has a leading position in its domestic insurance market, with a market share of 14% as at year-end 2019. However, the company’s underwriting portfolio is concentrated heavily toward medical and motor risks, which is a common characteristic of insurers in the region.

The company’s ERM framework has evolved under its new management team, and important steps have been taken to integrate the company with GIG’s group-wide ERM practices and improve the risk culture in the company. However, further time is required for these improvements to be embedded throughout the company and demonstrated in the results.

GIG continues to integrate operational aspects with its subsidiaries, providing support in areas such as reinsurance purchasing, risk management, pricing and reserving, and investment management services. In addition, GIG has demonstrated its commitment to gig-Jordan through a subordinated loan granted during 2017, which is still in force.

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