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FOR IMMEDIATE RELEASE
LONDON - MAY 06, 2016 11:58 AM (EDT)
A.M. Best has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and the issuer credit rating to “bbb+” from “a-” of Abu Dhabi National Insurance Company P.S.C. (ADNIC) (United Arab Emirates). Additionally, A.M. Best has removed these ratings from under review with negative implications. The outlook assigned to each rating is stable.
The rating downgrades reflect ADNIC’s deteriorated risk-adjusted capitalisation during 2015, coupled with the company’s failure to restore its capital position in a timely manner. ADNIC’s capital and surplus has fallen to AED 1.2 billion (USD 338.0 million) in 2015, down from AED 2.1 billion (USD 575.8 million) in 2013. Whilst the company has sought to issue a mandatory convertible bond, aimed at strengthening capital adequacy, the process is taking longer than anticipated and has raised concerns regarding the company’s financial flexibility and ability to manage capitalisation effectively. ADNIC continues to finalise its proposed issuance of an AED 390.0 million mandatory convertible bond, with an execution date expected toward the end of May 2016.
In addition, the rating action reflects the company’s weak earnings performance in 2014 and 2015, with adverse prior year reserve development being the principal driver for the poor performance in both years. The company reported operating losses of AED 334.5 million (USD 91.1 million) in 2015 and AED 280.4 million (USD 76.4 million) in 2014. Going forward, A.M. Best anticipates a material improvement in both technical and operating performance, with the company’s operating result expected to return to profit in 2016.
The stable outlook reflects remedial steps taken by ADNIC to-date, which are expected to support solid rating fundamentals over the medium term. The company has taken action to improve its governance structure and underwriting discipline, including restructuring of the senior management team and overhauling its claims and reserving processes. ADNIC also continues to have a strong business profile in its domestic market, ranked as the third largest listed United Arab Emirates insurer, based on 2015 gross written premiums.
This press release relates to rating(s) that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page.
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