AM Best Downgrades Credit Ratings of Insurance House P.S.C.; Places Credit Ratings Under Review With Negative Implications

LONDON--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to C++ (Marginal) from B+ (Good) and the Long-Term Issuer Credit Rating to “b+” (Marginal) from “bbb-” (Good) of Insurance House P.S.C. (IH) (United Arab Emirates). Concurrently, AM Best has placed these Credit Ratings (ratings) under review with negative implications.

The ratings reflect IH’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and weak enterprise risk management (ERM).

The rating downgrades reflect the revision of IH’s balance sheet strength, operating performance and ERM assessments. This follows the identification, during the first quarter of 2023 (Q1 2023), of material misstatements related to reinsurance of the company’s medical portfolio for prior periods, which resulted in a provisional write-down of AED 69.3 million within the restated account as of 31 December 2022.

Following the restatement, the company is in breach of regulatory minimum capital requirements as per the Central Bank of UAE, and AM Best observed a significant deterioration in IH’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), to the adequate level from the strongest level. IH’s risk-adjusted capitalisation deteriorates further when considering the overall losses reported in Q1 2023.

Furthermore, late realisation of losses has distorted IH’s operating performance in recent periods, with restated income statements resulting in aggregate net losses of AED 39.9 million over the past three years (2020-2022) as opposed to an aggregate net profit of AED 23.8 million prior to restatements. This is driven notably by a material deterioration in the company’s net loss experience. Given the challenging market conditions, particularly in IH’s core lines of motor and medical, prospective operating performance is expected to remain marginal.

In addition, the company has not adopted IFRS 17 as of Q1 2023, which has led to an adverse conclusion in the auditor’s report. The material accounting misstatements and control failings have highlighted concerns around the company’s corporate governance and risk management capabilities, more generally.

Following these events, IH has published a recovery plan, notably to raise capital and recover its regulatory solvency position in the near term. However, AM Best recognises high execution risk associated with the company’s recovery plan and its ability to alleviate negative pressure on the balance sheet strength assessment. AM Best anticipates potential further deterioration in the company’s risk-adjusted capitalisation, through operating losses given the challenging market conditions, moreover, the reliance on subordinated debt to remediate regulatory breaches will have marginal impact on BCAR. The ratings have been placed under review with negative implications while AM Best completes its assessment of IH’s credit profile.

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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