Best’s News & Research Service - February 10, 2023 11:16 AM (EST)
AM Best Downgrades Credit Ratings of Middle East Insurance Company Plc
- February 10, 2023 11:16 AM (EST)
London //BestWire// - AM Best has downgraded the Financial Strength Rating (FSR) to B (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb+” (Fair) from “bbb-” (Good) of Middle East Insurance Company Plc (MEICO) (Jordan). The outlook of the FSR has been revised to stable from negative, while the outlook of the Long-Term ICR is negative.
The Credit Ratings (ratings) reflect MEICO’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.
The rating downgrades reflect a revision in AM Best’s assessment of MEICO’s operating performance to adequate from strong. While the life segment’s profitability has been relatively stable in recent years, non-life underwriting results have deteriorated, resulting in the five-year weighted average non-life combined ratio (as calculated by AM Best) increasing to 99.0% for the period 2017-2021, from 91.7% for the period 2012-2016. This translated in a decrease in the five-year weighted average return on equity to 3.3% between 2017 and 2021, from 7.3% between 2012 and 2016. AM Best expects prospective earnings to be adequate, with underwriting profitability constrained by the competitive insurance market conditions prevailing in Jordan, MEICO’s sole market.
The negative Long-Term ICR outlook reflects pressure on the balance sheet strength assessment stemming from the impact of asset risk on MEICO’s risk-adjusted capitalisation, which as at year-end 2021 was at the strong level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s risk-adjusted capitalisation is impacted adversely by the significant capital requirements derived from concentration to single equity and real estate holdings. The balance sheet strength assessment considers MEICO’s unleveraged balance sheet and adequate liquidity, with cash and deposits covering 90% of net technical reserves as at the end of the third quarter of 2022.
MEICO is a mid-tier player in Jordan, with gross written premium (GWP) of JOD 41.3 million (USD 58.3 million) in 2021. Growth was moderate over the 2017-2021 period, as evidenced by a compounded annual growth rate of 0.2%, indicating the difficulties achieving profitable growth in a very competitive market. However, MEICO achieved a 9.9% growth in GWP during the first nine months of 2022 when compared with the same period of 2021.
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.