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Best’s News & Research Service - October 15, 2020 11:04 AM (EDT)

AM Best Downgrades Issuer Credit Rating of Saudi Arabian Insurance Company B.S.C. (c)

  • October 15, 2020 11:04 AM (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) of B++ (Good) of Saudi Arabian Insurance Company B.S.C. (c) (Damana) (Bahrain). The outlook of the Long-Term ICR has been revised to stable from negative, whilst the outlook of the FSR is stable.

The Credit Ratings (ratings) reflect Damana’s balance sheet strength, which AM Best categorises as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.

The downgrade of the Long-Term ICR reflects the company’s marginal technical results over recent years and uncertainty regarding prospective performance. Although the company’s historical performance had been good, a material decline in premium volumes as a result of a significant reduction in the international medical portfolio in 2018 has resulted in weakened underwriting performance metrics and depressed returns on equity.

Damana generated a combined ratio of 116% and 129%, as calculated by AM Best, in 2018 and 2019, respectively, reflective of considerable expense strain. While Damana executes strategic actions aimed at strengthening performance, the company’s capacity to generate sustainable technical earnings prospectively remains uncertain.

Damana’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company benefits from very low underwriting leverage, while 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.

Damana reported gross written premium of USD 42 million in 2019, an 85% decline compared with 2017, due to the significant reduction in the international medical portfolio, and a 25% decline with respect to 2018. The company maintains a regional presence in the Middle East, with operations in Bahrain, the United Arab Emirates, Oman and Kuwait. Damana’s strategic actions are expected to result in a return to growth over 2020, although AM Best acknowledges the challenging and competitive market conditions in the company’s core operating segments across the region.

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 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.

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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

Middle East Financial Strength Bahrain Press Release Insurance Issuer Credit Rating Best's Credit Rating Action

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