AM Best Affirms Credit Ratings of Adamjee Insurance Company Limited

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 Adamjee Insurance Company Limited (Adamjee) (Pakistan). The outlook of these Credit Ratings (ratings) is stable.

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

Adamjee’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the strong level as at year-end 2020. Investment risk is the principal driver of required capital, with the investment portfolio highly exposed to equity securities in Pakistan. While in line with domestic regulatory requirements to hold domestic assets, this allocation impacts asset quality and exposes the company’s capital base to potential volatility. Adamjee does, however, benefit from some investment diversification achieved through assets held in the United Arab Emirates (UAE) to support its branch operations there. Further offsetting balance sheet factors include Adamjee’s increasing dependence on reinsurance and its exposure to non-rated reinsurance recoverables through mandatory cessions to the state-owned reinsurer in Pakistan.

Adamjee has a history of solid profitability, with profits before tax ranging from PKR 1.9 billion to PKR 4.1 billion between 2016 and 2020. Strengthening consolidated underwriting performance in recent years has been supported by its life subsidiary starting to generate a profit. Non-life underwriting performance has been consistently profitable, with the company producing a five-year (2016-2020) weighted average combined ratio of 95%. Preliminary results for 2021 show improved underwriting performance, following a slight deterioration in the combined ratio in 2020 to 96.2%. Investment income remains the largest contributor to earnings, accounting for just under 70% of total profit over the past five years (2016-2020), but improving life and non-life underwriting results have resulted in a more balanced split of earnings in recent periods. AM Best expects the company’s focus on underwriting discipline and risk selection to support improving underwriting results and the maintenance of a strong performance assessment prospectively.

Adamjee maintains a good competitive position in Pakistan, as the country’s second-largest non-life insurer based on gross written premium, with a strong position in the commercial and infrastructure risks sector. The company writes a diversified portfolio, offering conventional and Takaful non-life, as well as life products domestically, principally to commercial customers. In addition, Adamjee writes approximately 25% of its non-life business through branch operations in the UAE, reducing its concentration of insurance operations and assets in Pakistan, which has very high levels of economic, political and financial system risk.

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