Best’s News & Research Service - March 28, 2019 01:04 PM (EDT)
AM Best Withdraws Credit Ratings of Arab Insurance Group (B.S.C.)
- March 28, 2019 01:04 PM (EDT)
London //BestWire// - AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “bbb+” and affirmed the Financial Strength Rating (FSR) B++ (Good) of Arab Insurance Group (B.S.C.) (Arig) (Bahrain). The outlook of the FSR has been revised to negative from stable while the outlook of the Long-Term ICR remains negative. Concurrently, AM Best has withdrawn these Credit Ratings (ratings) as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect Arig’s balance sheet strength, which AM Best categorises as very strong, as well as its marginal operating performance, neutral business profile and marginal enterprise risk management (ERM).
The Long-Term ICR downgrade reflects a revision in AM Best’s assessment of the company’s operating performance to marginal from adequate. The company reported a net loss of USD 52 million in 2018. Although Arig’s own reinsurance and investment operations reported positive earnings, these were offset by significant underwriting losses from its Lloyd’s participation, amounting to USD 28.3 million, and a USD 21.5 million provision for fraud uncovered in one of its subsidiaries. As a result of these losses, Arig’s five-year (2014-2018) average return on equity stands at -2.2%. Additionally, the company has reported underwriting losses in four of the past five years, with a five-year (2014-2018) average non-life combined ratio of 106%.
As a consequence of the operating losses, ARIG also suffered a material deterioration in the company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), stemming from a reduced level of capital and surplus, which diminished from USD 257 million in 2017 to USD 196 million at year-end 2018.
The negative outlooks reflect the potential for further deterioration in the balance sheet strength in the medium-term and AM Best’s continuing concern with the company’s ERM. AM Best also notes the possible execution risk that could emanate from any change in business strategy implemented under the leadership of a new CEO, following the departure of the previous CEO in June 2018.
The company continues to benefit from a strong brand in the Middle Eastern and North African reinsurance markets, built upon its excellent reputation and long-standing relationships with cedants. However, Arig faces heightened reputational risk with regard to the events that occurred in the past year.
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 Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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