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FOR IMMEDIATE RELEASE
LONDON - NOVEMBER 30, 2018 11:39 AM (EST)
A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Middle East Insurance Company Plc (MEICO) (Jordan). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect MEICO’s balance sheet strength, which A.M. Best categorises as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
MEICO’s balance sheet strength is underpinned by risk-adjusted capitalisation at the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite significant exposure to investment risk stemming from the company’s equity and real estate holdings, A.M. Best expects prospective capitalisation to remain at the very strong level, supported by steady internal capital generation. Offsetting factors include risk associated with the company’s dependence on reinsurance, which is mitigated partially by a reinsurance panel of good credit quality, and concentration of investments in Jordan’s equity and real estate markets, which exposes its capital base to potential volatility.
MEICO has a track record of strong operating results, with a five-year (2013-2017) average return on equity of 6.7%, supported by robust underwriting performance and modest investment returns. Over the last two years, fierce competition in Jordan’s insurance market has increased the pressures on technical margins, and MEICO’s combined ratio deteriorated to 95.8% in 2017 (88.8% in 2015). Despite the prevailing soft market conditions, A.M. Best expects the company to continue to maintain good technical profitability over the medium term, with a loss ratio of approximately 70.0%, benefitting from a disciplined underwriting approach. However, significant exposure to Jordan’s equity market could introduce volatility in prospective operating performance.
Although MEICO has a good competitive position within Jordan, with gross written premium of JOD 42.2 million in 2017, this is a relatively small market on a global scale. The company has a well-diversified business portfolio on a gross basis but is concentrated in the motor line of business on a net basis. A.M. Best expects prospective growth to remain measured, with MEICO focusing on bottom line profitability, supported by an extensive direct sales network across Jordan.
Whilst MEICO has evidenced strong control over its underwriting operations, the company’s ERM framework lacks sophistication. However, A.M. Best expects the company to develop the framework over the short to medium term whilst continuing to enhance its governance structure.
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