Best’s News & Research Service - December 09, 2021 09:25 AM (EST)
AM Best Removes From Under Review With Negative Implications, Downgrades Credit Ratings of Union Insurance Company P.J.S.C.
- December 09, 2021 09:25 AM (EST)
London //BestWire// - AM Best has removed from under review with negative implications and downgraded the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating to “bbb-” (Good) from “bbb” (Good) of Union Insurance Company P.J.S.C. (Union) (United Arab Emirates). The outlook assigned to these Credit Ratings (ratings) is negative.
The Credit Ratings (ratings) reflect Union’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The rating downgrades reflect a revision in AM Best’s assessment of Union’s ERM capabilities and governance framework. This follows recent deficiencies identified, particularly pertaining to the company’s investment risk management and governance practices. In the first half of 2021, Union fully provided against property investments worth AED 72.3 million, for which the board of directors has concluded the company has neither the title deeds nor possession. This write-off of investment properties contributed to a reduction in available capital and to the company breaching its regulatory solvency capital requirement. AM Best notes that Union has taken remedial actions to strengthen internal controls, processes and governance arrangements; however, these are currently untested, and AM Best views risk management capabilities in certain key risk areas as non-aligned with Union’s risk profile.
The negative outlooks reflect AM Best’s concerns regarding Union’s capital management, in particular with respect to the company’s regulatory solvency position, which is currently in breach of regulatory requirements. In addition, a high level of debtor balances negatively affect the company’s liquidity position.
AM Best notes that Union has taken initial steps to address the regulatory solvency breach and will closely monitor further developments.
AM Best assesses Union’s operating performance as adequate; however, overall returns have been suppressed due to unrealised losses primarily emanating from a single large equity holding. Union’s five-year (2016-2020) weighted average return on equity stands at 1.3%. AM Best expects that Union’s sale of its holdings in this single issuer will alleviate this drag on operating profitability, as historically, these negative investment returns have offset the company’s good technical results. Union has achieved a five-year (2016-2020) weighted average non-life combined ratio of 97.1% and good, albeit declining, life insurance margins over this period.
Union retains its position as a midtier composite insurer in the UAE market, where it ranked ninth by gross written premium in 2020, and writes a diverse portfolio of life and non-life business. The business profile assessment benefits from the company’s diverse distribution network, which is expected to support profitable growth in the coming years.
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.