AM Best Affirms Credit Ratings of Al Fujairah National Insurance Company PJSC

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 Al Fujairah National Insurance Company PJSC (AFNIC) (United Arab Emirates). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect AFNIC’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management (ERM). The ratings also reflect rating enhancement from AFNIC’s majority shareholder, the Government of Fujairah- Department of Industry and Economy, which holds in excess of 80% of AFNIC directly. The government of Fujairah has demonstrated capital support to AFNIC through past capital injections and allowing the accumulation of capital at the company through bonus shares in lieu of cash distributions.

The negative outlooks reflect AFNIC’s loss making operating results, reported since 2022, which places pressure on AM Best’s operating performance assessment of strong. A net loss of AED 14.4 million was reported for year-end 2022 and a further AED 13.4 million loss was reported over the first nine months of 2023, largely the result of poor technical performance, which has been offset partially by positive investment returns. Alongside several large losses on the fire book of business and elevated claims experience on motor, AFNIC’s expenses base has been strained by a reduction of earned premiums.

AFNIC’s balance sheet strength is underpinned by a very strong level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). AFNIC’s balance sheet has been challenged by recent reported losses, resulting in the reduction in capital and surplus in 2022 by 13.2%. Management is taking steps to improve the balance sheet strength and boost its regulatory solvency position, through the partial derisking of its investment portfolio. AFNIC historically has held a high-risk investment strategy, invested in equity securities (68% of total investments at year-end 2022) and real estate (18%), exposing the balance sheet to fair value fluctuations. Despite a redefined investment strategy, AFNIC’s concentrated equity portfolio to a single strategic holding keeps investment risk elevated.

AFNIC’s operations are concentrated to the competitive and highly fragmented UAE non-life insurance market, where it writes a small share of total market premiums. AFNIC maintains a unique position in the market, benefitting from some preferential access to government originated business in the emirate of Fujairah. AFNIC returned to topline growth in 2022, reporting a 10% growth in gross written premium to AED 262 million, driven by growth across the motor, engineering, fire and general accident lines. Continued growth has been observed over the first nine months of 2023, largely the result of regulatory intervention on market motor rates and new business opportunities.

AM Best considers AFNIC’s ERM framework and capabilities as marginal for the size and complexity of its operations. AFNIC continues to develop and formalise its risk management function, to adhere to new regulatory requirements in the UAE. AM Best views these developments as necessary to manage the company’s risk profile, notably for investment risk.

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.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.