AM Best Affirms Credit Ratings of Arabia Insurance Company – Jordan

LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” (Fair) of Arabia Insurance Company – Jordan (AICJ) (Jordan). The outlook of these Credit Ratings (ratings) is negative.

The 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 negative outlooks reflect pressures on the company’s risk-adjusted capitalisation and operating performance.

AICJ’s balance sheet strength is underpinned by risk-adjusted capitalisation, which fell to the adequate level at year-end 2022, as measured by Best’s Capital Adequacy Ratio (BCAR). 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. Asset risk remains the primary driver of AICJ’s capital requirements, reflecting its exposure to riskier asset classes including equities and real estate, as well as its concentration by issuer. The BCAR assessment also considers the company’s material potential catastrophe exposure and high reinsurance dependence. Prospective capital adequacy will depend on AICJ’s ability to generate capital internally that is commensurate with its growth in risk exposures.

While AICJ’s underwriting performance has typically trended at breakeven over the longer-term, challenging conditions in its domestic 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. Operating performance remains dependent on investment income, which AM Best expects to be bolstered by rising interest rates in Jordan throughout 2023, given that short-term bank deposits comprise approximately half of AICJ’s invested assets. Overall, AM Best expects earnings to remain constrained by challenging conditions in the company’s domestic 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 insurance 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.

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