AM Best Downgrades Issuer Credit Rating of Al-Sagr National Insurance Company P.S.C.

LONDON--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “bb+” (Fair) and affirmed the Financial Strength Rating of B (Fair) of Al-Sagr National Insurance Company P.S.C. (ASNIC) (United Arab Emirates). The outlook of these Credit Ratings (ratings) has been revised to negative from stable.

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

The Long-Term ICR downgrade reflects the ongoing erosion of ASNIC’s capital base following an AED 39.2 million net loss for the nine-month period ended 30 September 2021. At the end of third-quarter 2021, ASNIC reported capital and surplus of AED 281.1 million – a 12% decline from year-end 2020. This follows declines in the company’s capital position in 2019 and 2020. At the end of third-quarter 2021, ASNIC held regulatory capital equal to 111% of its solvency requirement. AM Best expects this to fall to under 105% by year-end 2021, presenting an elevated risk of breaching regulatory solvency. The company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is expected to deteriorate at year-end 2021, albeit remaining narrowly at the very strong level. The Long-Term ICR downgrade also considers ASNIC’s increased financial leverage as a result of its overdraft increasing by AED 90.8 million to reach AED 138.2 million at the end of third-quarter 2021; ASNIC has required support from its overdraft facilities to manage the elevated claims experience. The company’s investment portfolio has a high concentration of volatile domestic real estate and equity assets. The negative outlooks reflect the potential for further weakening in balance sheet strength metrics, due to the potential for further operating and/or investment losses.

ASNIC has a track record of adequate operating performance over recent years, evidenced by a five-year (2016-2020) average combined ratio of 95.8%. However, volatile investment results and finance costs to service the overdraft facility have weighed on overall earnings and the company has achieved only a moderate five-year average (2016-2020) return-on-equity ratio of 3.3%. Operating results deteriorated significantly in 2021, with a net loss of AED 39.2 million for the nine-month period, driven by underwriting losses on motor business and a share in net losses of an associate, Al Sagr Co-operative Insurance Co.

ASNIC has a modest business profile as a midtier insurer in the UAE market, generating gross written premiums of AED 525.5 million in 2020. There is some product diversification, but the company’s primary focus is on the motor and medical lines of business.

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