AM Best Revises Issuer Credit Rating Outlook to Negative for Jordan French Insurance Company Limited

LONDON--(BUSINESS WIRE)--AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” (Fair) of Jordan French Insurance Company Limited (JOFICO) (Jordan). The outlook of the FSR is stable.

The Credit Ratings (ratings) reflect JOFICO’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).

The revision of the Long-Term ICR outlook to negative reflects pressure on the company’s balance sheet strength stemming from a weakening risk-adjusted capitalisation and marginal liquidity levels driven by significant debtors balances, which as at year-end 2021 represented 140% of capital and surplus.

JOFICO’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which was at the very strong level at the end of 2021, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s BCAR scores deteriorated in 2021 from the strongest level as a result of increased underwriting risk driven by significant premium growth. The assessment factors in JOFICO’s small capital base, which heightens the sensitivity of its solvency position to potential shocks, and the company’s significant level of debtors. Another offsetting rating factor is JOFICO’s moderate dependence on reinsurance, although the associated risk is mitigated partially by a reinsurance panel of good credit quality.

JOFICO has a track record of adequate operating performance, demonstrated by a five-year (2017-2021) weighted average return-on-equity (ROE) ratio of 10.8%. The company’s operating performance is supported by its good underwriting profitability, with a five-year (2017-2021) weighted average combined ratio of 98.4%. While technical profitability has reduced moderately in recent years, AM Best expects JOFICO’s operating performance to remain adequate prospectively, translating in low double-digit ROE ratios.

JOFICO has a limited business profile as a mid-tier insurer in Jordan, ranking sixth in the local insurance market based on 2020 gross written premium. Although the company’s competitive position benefits from a number of long-term client relationships, the insurance market in Jordan is relatively small by international standards with limited growth opportunities.

JOFICO’s ERM framework is developing, with control and oversight of key risks conducted on a silo basis, and typically reactive in nature. AM Best expects the company’s risk management function to benefit from the recent appointment of a chief risk officer.

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