AM Best Downgrades Issuer Credit Rating of Arabia Insurance Company - Jordan

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 (FSR) of B (Fair) of Arabia Insurance Company – Jordan (AICJ) (Jordan). The outlook of the FSR has been revised to negative from stable, while the outlook of the Long-Term ICR is negative.

The Credit Ratings (ratings) reflect AICJ’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect, in the form of lift, AICJ’s strategic importance to its ultimate parent, Arabia Insurance Company s.a.l.

The downgrading of AICJ’s Long-Term ICR reflects deterioration in the company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which fell to the adequate level at year-end 2022. The decline was a result of higher-than-expected growth in underwriting exposure, coupled with a modest fall in capital due to underwriting losses during the year. The BCAR assessment also considers the company’s material potential catastrophe exposure and high reinsurance dependence. Prospectively, capital adequacy will depend on AICJ’s ability to generate capital commensurate with its growth in underwriting exposure.

The negative outlooks reflect concerns regarding AICJ’s future risk-adjusted capitalisation and operating performance. Whilst AICJ’s underwriting performance has typically trended at around breakeven over the longer term, challenging conditions in the local motor insurance market have weighed heavily on recent results. The company’s five-year (2018-2022) weighted average combined ratio of 104.0% was negatively impacted by combined ratios of 110.6% and 112.3% in 2022 and 2021, respectively. AM Best expects earnings to remain constrained by challenging conditions in the local motor market, with corrective measures implemented by management likely to take time to translate into improved results.

AICJ has a small market share in Jordan’s fragmented market. The company’s underwriting portfolio is dominated by motor business on a net written premium basis, as other lines of business are heavily reinsured.

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.

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