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 of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Al Dhafra Insurance Company P.S.C. (ADIC) (United Arab Emirates) [UAE]. The outlook of the FSR is stable.
The Credit Ratings (ratings) reflect ADIC’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
ADIC’s revised Long-Term ICR outlook reflects its weakening operating performance observed since 2021, which has placed pressure on AM Best’s operating performance assessment of strong. Historically, ADIC has reported a strong track record of underwriting and operating performance, demonstrated by a five-year (2018-2022) weighted average combined ratio of 69.9%, and a return-on-equity (ROE) ratio of 12.5%. However, more recent performance has been below historical averages, with ADIC reporting a combined ratio of 101.4% and a ROE of 6.0% (as calculated by AM Best) at year-end 2022. Lower profits have been driven by a weakening in the company’s underwriting performance, notably on the motor and medical books of business, reflecting a deteriorating trend in loss experience, as well as significant increases in outward commissions given the heightened competition in the market. In 2023, the company initiated actions to alleviate negative pressure on its underwriting performance; however, AM Best expects continuous challenging underwriting conditions in the motor and medical lines of business in the near term.
ADIC’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s balance sheet strength is also supported by a strong liquidity position, with cash and deposits covering net technical reserves by 215% at year-end 2022. Offsetting factors in the balance sheet strength assessment include ADIC’s investment concentration towards domestic equities and its high reinsurance dependence with an average premium retention below 30% over the last five years; although, the associated credit risk is partially mitigated by the use of a well-diversified reinsurance panel of sound financial strength.
ADIC’s business profile is assessed as limited, reflective of its market position as a mid-tier player in the UAE insurance market. For year-end 2022 it reported AED 317.4 million (USD 86.5 million) of gross written premium. The company’s underwriting portfolio is geographically concentrated in the highly competitive UAE market. While ADIC benefits from a diversified underwriting profile by line of business on a gross basis, its retained portfolio has greater concentration in the motor and medical lines of business.
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