Al Buhaira National Insurance Co. outlook to negative on debt leverage concerns

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The ratings on ABNIC, the parent company and core operating entity of ABNIC Group, reflect the group's strong operating performance, strong capitalization, and good competitive position. Offsetting factors are its marginal investment profile and lack of clear risk tolerances, particularly in its investment risk management.

Over the past seven years, ABNIC Group has consistently delivered an extremely strong underwriting performance, with a net combined ratio of 61% or less each year. However, this is partly because of the significant commission it receives from reinsurers. Moreover, the net loss ratio has been deteriorating steadily and is very high. Due to its high-risk investment portfolio, the group's investment performance, and therefore its overall operating performance, has been volatile and we expect it to remain so.

ABNIC has built up its business by offering a wide range of products and a high level of service across multiple distribution channels throughout the United Arab Emirates (UAE). The company's competitive position is strong in its core domestic market of Sharjah, where it is one of only two 'national' insurers. Elsewhere in the UAE, however, its competitive position is not as strong because it does not have 'national' insurer status outside Sharjah. This restricts its access to some business, particularly in Abu Dhabi.

'Standard & Poor's is increasingly concerned about ABNIC Group's debt leverage and the short-term nature of its borrowing,' said Standard & Poor's credit analyst Nigel Bond. 'The ratings may be lowered, therefore, if the debt leverage exceeds 45%. A stable outlook is possible if the debt leverage stabilizes or the short-term nature of the borrowing is significantly reduced.'

Mr. Bond continued:

'Standard & Poor's expects ABNIC Group's capital adequacy to remain at least strong. We also expect that its growth will all be organic and within the UAE, and its investment portfolio will remain heavily exposed to property and equities. We expect ABNIC to enhance its enterprise risk management, especially its risk tolerance, but the scope and speed of this enhancement is uncertain.'