LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Union Insurance Company P.J.S.C. (Union) (United Arab Emirates). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Union’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
Union’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s risk-adjusted capitalisation has strengthened over recent years, benefitting from gradual reductions in underwriting leverage and a reinsurance panel of generally solid credit quality. Offsetting balance sheet factors include Union's material holdings of higher-risk asset classes and its concentration to a single issuer, which continues to expose the company to significant volatility. AM Best notes ongoing management actions to increase the company’s allocation to liquid investments, with funds routinely re-invested in cash and fixed-term deposits. AM Best’s assessment also considers Union's thin coverage of its regulatory solvency capital requirement in the UAE, which as at 30 June, 2020, recovered to 107.1%, having declined to 101.9% at 31 March, 2020.
Union has a track record of adequate underwriting performance despite challenging market conditions, demonstrated by a five-year (2015-2019) weighted average non-life combined ratio of 98.2%, and robust life insurance margins. However, throughout the past five years, Union has reported unrealised losses totaling AED 81.6 million, which have almost entirely offset the underwriting profits achieved throughout the period, translating into a five-year weighted average investment yield (including gains/losses) of -3.4%. These fair value losses have primarily emanated from a single large equity holding. AM Best expects prospective operating results to be supported by the company’s increased focus on selective underwriting, along with improved commission income.
Union is the eighth largest listed primary insurer in the UAE by gross written premium, writing a diversified mix of life and non-life business. The business profile assessment benefits from Union’s diverse distribution network, which is expected to underpin sustained profitable growth over the medium term.
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