Best’s News & Research Service - December 10, 2021 10:24 AM (EST)
AM Best Affirms Credit Ratings of Life Insurance Corporation (International) B.S.C. (c)
- December 10, 2021 10:24 AM (EST)
London //BestWire// - AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” (Fair) of Life Insurance Corporation (International) B.S.C. (c) (LICI) (Bahrain). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect LICI’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and weak enterprise risk management (ERM).
The negative outlooks reflect the company’s ongoing breach of its regulatory solvency requirement in the United Arab Emirates, which could impact its ability to do business there, which is LICI’s core market.
LICI’s balance sheet strength assessment is underpinned by its strongest level of risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s BCAR strengthened materially over 2019 and 2020 from a very weak level at year-end 2018, driven by an increase in available capital due to capital gains. LICI’s risk-adjusted capitalisation has further strengthened during 2021 from a capital injection by its parent, Life Insurance Corporation of India (India). Offsetting factors to LICI’s balance sheet strength assessment include significant volatility in its capital adequacy, which is highly sensitive to financial markets, as well as concerns over the adequacy of its asset-liability management.
LICI has a track record of adequate but volatile operating performance, with a positive, albeit low, five-year average return-on-equity (ROE) of 1.6% (2016-2020). The five-year average includes an after-tax loss of BHD 14.2 million incurred in 2018, primarily caused by a downturn in financial markets coupled with bonuses credited to policyholders, which translated into an ROE of -28% for that year. AM Best expects LICI’s prospective performance to revert to historical averages, remaining supportive of its adequate assessment over the cycle.
LICI benefits from its niche market position, targeting India’s ex-patriate community in Gulf Cooperation Council (GCC) states by leveraging its parent’s strong brand in the region, as well as the portability of its policies back to India.
LICI’s ERM framework is assessed as weak, as a result of poor capital management capabilities, demonstrated by the ongoing breach of regulatory solvency requirements in the UAE and by its regulatory solvency margin in Bahrain falling below management trigger points in early 2020. Risk management of the company has proven to be more reactive than proactive.
AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.
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.