AM Best Affirms Credit Ratings of Suez Canal Insurance

LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of “bb-” (Fair) of Suez Canal Insurance (SCI) (Egypt). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect SCI’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

SCI’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR), for the fiscal year-end 30 June 2020 (FY 2020). Capital consumption is driven primarily by the company’s concentrated investment portfolio, which is weighted toward Egyptian fixed income securities and real estate. An additional offsetting factor is the company’s high reliance on reinsurance, as evidenced by the retention ratio of 50.9% in FY 2020. The associated credit risk is mitigated partially by the use of a strong reinsurance panel. The balance sheet strength assessment also considers SCI’s exposure to the high levels of economic, political and financial system risks that are associated with operating in Egypt.

SCI’s operating performance is assessed as adequate reflecting the company’s robust earnings over recent years, demonstrated by a five-year (FY 2016 - FY 2020) weighted average return on equity (ROE) of 16.8%. Whilst the company’s ROEs have been good, albeit somewhat volatile, they should be viewed in the context of Egyptian price inflation, which has averaged approximately 15% over the same period. Earnings remain skewed toward investment income, which accounted for the overwhelming majority of pre-tax profits over the past five years, reflecting the high interest rate environment in Egypt. SCI’s underwriting performance has been marginally loss making, evidenced by a five-year weighted average combined ratio of 101.6%. Technical results have been constrained by SCI's very high expense ratio, which remained above 52.0% in each of the past five years.

The business profile assessment reflects SCI’s position as a mid-tier private sector insurer in Egypt, with a non-life market share of approximately 5% at FY 2020. However, the company’s profile is limited to operating within Egypt, and, on a net premium basis, its portfolio is concentrated heavily toward the motor line.

The company historically operated basic risk management practices; however, in recent years, SCI has undertaken steps to establish and formalise an enterprise-wide risk-aware culture. AM Best expects that further improvements in SCI’s ERM framework and practices, if implemented successfully, will allow the company to reliably manage its risk exposures.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

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