Moody's assigns A3 IFSR to Al-Ain Ahlia Insurance

The rating outlook is stable.

Al-Ain Ahlia was created in 1975 and is one of the principal insurance companies operating in the Emirate of Abu Dhabi.

Al-Ain Ahlia offers a wide range of non-life insurance lines to companies and individuals in Abu Dhabi, with a particular focus on providing property, engineering, oil & gas and motor insurance to the major state-sponsored and private commercial enterprises.

In 2008, Al-Ain Ahlia recorded gross written premia of Dhs696m ($189m) and had total assets of Dhs2,179m ($593m) as at 31st December 2008. The company ranks in the top 5 in the UAE insurance market when ranked by gross premium. Al-Ain Ahlia was established by the government of Abu Dhabi, and remains partially state-owned with a 19.7% stake held by the Abu Dhabi Investment Council. As a consequence, Moody's assesses Al-Ain Ahlia as a Government-Related Issuer (GRI).

In accordance with Moody's rating methodology for GRIs, the rating of Al-Ain Ahlia reflects a combination of the following inputs: (i) a baseline credit assessment of 7 (on a scale of 1 to 21, where 1 represents the lowest credit risk); (ii) 100% dependence, reflecting the company's operating and financial proximity to the government of Abu Dhabi; and (iii) 20% support, reflecting the importance of Al-Ain Ahlia in its capacity as an insurer of government projects offset by the limited state ownership of 19.7%.

"The main standalone strength of Al-Ain Ahlia is its strong business position within the State of Abu Dhabi," says Paul Oates, Vice President -- Senior Analyst in Moody's EMEA Insurance Group. It has a tangible advantage over other insurers in that it seeks business stemming from major projects through its technical expertise, boasts a robust capital position and a reinsurance programme, benefits from state ownership as well as a long history of specialisation in engineering and energy risks.

"Al-Ain Ahlia's profitability is good, although Moody's recognizes that there is some volatility of business line performance due to the company's limited diversification," explains Mr Oates. However, these strengths are offset by the high-risk investment strategy in comparison to Western insurers. The company has large investments in local equity and property markets, which have shown some considerable volatility. Nevertheless, Al-Ain Ahlia is strongly capitalised with a gross underwriting leverage of 1.1x in 2008. If all equities and properties were deducted from capital, the gross underwriting leverage would still remain at a more than satisfactory 2.5x. In addition, Moody's notes the limited diversification, with most exposures being limited to Abu Dhabi, and the inherent risk of large single exposures through a mostly corporate book.

Moody's says that upward rating pressure for Al-Ain Ahlia may evolve over time from (1) a significant reduction in investment risk, either through a wider spread of asset classes and/or geographic exposure; and (2) through sustained profitable growth and international expansion reducing concentration risks.

Conversely, Moody's says that the rating may experience downward pressure from (1) a significant deterioration in Abu Dhabi's economic environment; (2) reduced underwriting profitability with combined ratios of above 100% for several years; and (3) a reduced capital position with gross underwriting leverage rising above 2.5x.

The following rating was assigned: Al-Ain Ahlia Insurance Co. -- A3 insurance financial strength rating, stable outlook.

The principal methodology used in rating Al-Ain Ahlia was Moody's Global Rating Methodology for Property and Casualty Insurers, published in July 2008 and available on Moody's website in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Based in Abu Dhabi in the UAE, Al-Ain Ahlia recorded as of H1 2009 net income of Dhs48.2m and unrealised gains on investments such that total equity fell to Dhs1,093m from Dhs1,154m despite a dividend payment of Dhs150m. Gross Written Premium of Dhs354m was fairly static compared to H1 2008 when the premium amounted to Dhs358m.