AM Best Revises Outlooks to Negative for Arabia Insurance Company s.a.l.

LONDON--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Arabia Insurance Company s.a.l. (AIC).

The Credit Ratings (ratings) reflect AIC’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The revised outlooks to negative from stable reflect the decline in AIC’s operating performance in recent years, which is placing additional pressure on the company’s balance sheet strength assessment as the rate of internal capital generation has not kept pace with the growth in key risk exposures.

AIC’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the very strong level at year-end 2024, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s capital consumption is driven largely by investment risk, reflecting the company’s exposure to equity and real estate investments, with certain holdings attracting additional concentration charges in BCAR. The assessment factors in the geographically diversified operations of AIC across the Middle East, which shields the group partially from the very high political, economic and financial system risks in Lebanon. Further offsetting factors are the company’s limited capital fungibility, which is constrained by stringent regulatory capital requirements in AIC’s operating jurisdictions and its debt servicing needs.

AIC has a track record of profitable, albeit volatile, operating performance, with positive results reported in four of the past five years (2020-2024). However, results in 2023 and 2024 have been lacklustre, with the company reporting return-on-equity (ROE) ratios of 1.4% and 3.9%, respectively. Overall earnings have been impacted negatively by a deterioration in non-life underwriting performance, illustrated by net/net combined ratios of 108.2% and 110.1% in 2024 and 2023, respectively. The primary driver of underwriting losses is AIC’s elevated expense ratio, which has been inflated in recent years due to the decentralisation of its operations and relocation costs of staff outside of Lebanon. While the management team continues to take steps to address profitability concerns, AM Best expects AIC’s underwriting performance to remain pressured over the near term given the company’s modest scale and the highly competitive nature of its core operating markets.

AIC’s market profile benefits from a long-standing reputation and diversification of operations across the Middle East. However, the company’s modest footprint across most of its core markets limits its competitive position. AM Best considers political and regulatory risks to be among AIC’s greatest challenges. The appropriate ERM assessment takes into consideration AM Best’s expectation that AIC will continue to develop its risk management framework and capabilities proactively to adapt to the evolving nature of its operating markets in a controlled way.

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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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