Best’s News & Research Service - September 20, 2018 02:45 PM (EDT)
A.M. Best Removes From Under Review With Negative Implications, Downgrades Credit Ratings of Saudi Arabian Insurance Co. B.S.C.
- September 20, 2018 02:45 PM (EDT)
London //BestWire// - A.M. Best has removed from under review with negative implications and downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (ICR) to “bbb+” from “a-” of Saudi Arabian Insurance Company B.S.C. (C) (Damana) (Bahrain). The outlook assigned to the Long-Term ICR is negative. The outlook assigned to the FSR is stable.
The ratings were placed under review with negative implications in April 2017, following the discontinuation of Damana’s strategic business relationship with its international partner. The rating actions follow A.M. Best’s updated assessment of the company’s future strategy and business model.
The rating downgrades and negative outlook reflect the company’s inability to substitute business lost following the termination of this relationship. This has had a negative impact on Damana’s business profile and prospective operating performance.
The ratings reflect Damana’s balance sheet strength, which A.M. Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
As expected, premium volumes have decreased materially during the first half of 2018. Damana reported gross written premiums of USD 37 million, a 76% decline compared with the same period last year. Despite the loss of Damana’s key strategic partnership, the company has a regional presence with operations in Bahrain, the United Arab Emirates, Oman and Kuwait. The company also has affiliates and sister companies in Saudi Arabia, Yemen and Lebanon. Whilst Damana will continue to search for a new strategic partner, A.M. Best expects expansion in the short term will likely derive from organic growth of its residual underwriting portfolio.
In A.M. Best’s opinion, prospective performance is likely to be weaker and with a higher degree of volatility, following the discontinuation of the partnership. Historically, underwriting performance has been good, with the company reporting a five-year average combined ratio of 89.1%; however, this increased to 112.0% in 2017, as a result of an increase in the expense ratio rather than a material deterioration in claims experience. Damana’s current operating model was established to service significantly larger premium volumes and business growth will be important to dilute the company’s high fixed costs.
Damana’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), was assessed at the strongest level at year-end 2017. The company’s underwriting leverage is considered to be very low, and capital requirements are driven largely by asset risk arising from the company’s concentrated investment portfolio that is weighted toward affiliated investments and a group treasury account. The group treasury account generates a guaranteed rate of return and is deposited with Damana’s ultimate parent, Mawarid Holding Company. A.M. Best notes that despite concentration in the group treasury account, the company maintains a sufficient level of liquidity and geographic diversification of assets across the region.
This press release relates to Credit Ratings 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. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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