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

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

The Credit Ratings (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 (ERM).

The Long-Term ICR outlook revision to negative reflects pressure on Adamjee’s credit fundamentals from heightened economic, financial system and political risk in Pakistan. In spite of economic growth and support from the International Monetary Fund, Pakistan faces significant headwinds from rising debt servicing costs, a depreciating rupee and elevated global commodity prices. Adamjee has significant exposure to Pakistan, where the company generates the majority of its business and holds approximately 80% of its investments. The recent floods in Pakistan are expected to have a limited impact on Adamjee’s operating performance, owing to its moderate exposure to related losses. However, the floods are exacerbating the country’s liquidity and external credit issues, and government resources have been negatively impacted. AM Best notes the company’s historical operational resilience to country risk factors.

Adamjee’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), at the very strong level at year-end 2021. Although it benefits from some investment diversification achieved through assets held in the United Arab Emirates to support branch operations there, 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 assets locally, this allocation exposes the company to potential capital volatility, especially in the light of increasing economic, political and financial system risk in Pakistan.

Adamjee has a history of robust profitability, with profits before tax ranging from PKR 1.9 billion to PKR 4.3 billion between 2017 and 2021. Strengthening consolidated underwriting performance in recent years has been supported by profits from the company’s life subsidiary. Non-life underwriting has been consistently profitable, with the Adamjee producing a five-year (2017-2021) weighted average combined ratio of 94.9%. AM Best expects the company’s focus on underwriting discipline and risk selection to support improving underwriting results.

ERM is viewed to be appropriate given the size and complexity of Adamjee’s operations. However, the company's risk profile has increased recently as a result of the deteriorating risk environment in Pakistan.

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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.