Best’s News & Research Service - August 13, 2021 11:40 AM (EDT)
AM Best Revises Issuer Credit Rating Outlook to Negative for Arabia Insurance Company – Jordan
- August 13, 2021 11:40 AM (EDT)
London //BestWire// - AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” (Fair) of Arabia Insurance Company - Jordan (AICJ) (Jordan). The outlook of the FSR is stable.
The Credit Ratings (ratings) reflect AICJ’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also reflect, in the form of lift, AICJ’s strategic importance to its parent, Arabia Insurance Company s.a.l. (AIC).
The revision of the outlook to negative reflects the pressures on AICJ’s lift assessment, which follows the revision of AIC’s rating outlook to negative.
AICJ’s balance sheet strength is underpinned by risk-adjusted capitalisation, which was at the very strong level at year-end 2020, as measured by Best’s Capital Adequacy Ratio (BCAR). An offsetting rating factor is AICJ’s high reinsurance dependence, driven by high cessions on its property risks. Whilst the majority of the company’s reinsurers are of solid credit quality, AICJ has significant credit exposure to non-rated Jordanian companies. AM Best expects prospective BCAR scores to remain at least at the very strong level, supported by good earnings retention, notably as AICJ is expected not to pay any dividends for the reporting year-end 2021.
AICJ has a track record of generating positive operating earnings, demonstrated by a five-year (2016-2020) weighted average return on equity of 4.5%. Underwriting performance has been stable, albeit marginal, as demonstrated by a five-year weighted average combined ratio of 98.5%. Earnings have been weighted toward investment income, with the company consistently generating an investment yield above 3.0% over the last five years. Over the medium term, operating performance is expected to remain adequate, supported by stable underwriting performance and positive investment returns.
AICJ’s limited business profile assessment reflects its small market share in the overcrowded and fragmented Jordanian market. The company’s underwriting portfolio is dominated by motor business on a net written premium basis, as other lines of business are heavily reinsured.
While AICJ’s ERM framework is emerging, it is considered to be commensurate with the size and complexity of the operations. The ERM assessment factors in developments that are expected to arise from leveraging on AIC’s risk management capabilities.
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 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.