AM Best Affirms Credit Ratings of Union Insurance Company P.J.S.C.

LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Union Insurance Company P.J.S.C. (Union) (United Arab Emirates). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect Union’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.

The negative outlooks reflect AM Best’s concerns regarding Union’s capital management, in particular with respect to the company’s regulatory solvency position. Whilst the company addressed its breach of regulatory requirements in the first quarter of 2022, regulatory capital adequacy remained thin at the end of the third quarter of 2022. In addition, a high level of debtor and reinsurance recoverable balances negatively affect the company’s liquidity position.

Union’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), declined in 2021 as a result of increased credit risk arising from reinsurance balances recoverable on several large claims incurred. The balance sheet strength assessment is underpinned by AM Best’s expectation that Union’s risk-adjusted capitalisation will recover to the strongest level in the short term, and remain at this level, prospectively. The assessment factors in the company’s reduced investment risk, following the required write-off of investment properties and management’s de-risking of the equity portfolio with the disposal of a large single equity holding in 2021. To date, proceeds have been reinvested largely in cash and deposits. Partially offsetting balance sheet factors include the company’s thin regulatory solvency coverage, elevated reinsurance dependence, and high debtor balances as a proportion of capital and surplus.

Union has a track record of adequate operating performance, with a five-year (2017-2021) weighted average return-on-equity ratio of 3.3%, supported by solid non-life underwriting profitability. The company has recorded a five-year (2017-2021) weighted average non-life combined ratio of 95.3% (as calculated by AM Best). Volatile investment returns associated with a concentrated, high-risk investment portfolio have affected Union’s operating profitability in the past. AM Best expects management actions taken to de-risk the asset portfolio in the latter part of 2021 to reduce volatility in future operating performance.

Union retains its position as a mid-tier composite insurer in the UAE market, where it ranked eighth by gross written premium in 2021, writing a diverse portfolio of life and non-life business. Despite a well-balanced distribution network, profitable growth potential remains limited, as insurance revenue is concentrated in the highly competitive UAE market, where the company originates approximately 90% of its business.

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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.

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