A.M. Best has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of “bbb” of Al-Sagr National Insurance Company P.S.C. (ASNIC) (United Arab Emirates).
The outlook for both ratings remains stable. The ratings reflect ASNIC’s strong risk-adjusted capitalisation, stable operating performance and good business profile within the United Arab Emirates (UAE). Offsetting rating factors are the company’s exposure to volatile investments and leveraged financial position of its parent, Gulf General Investments Co. P.S.C. (GGICO).
ASNIC’s risk-adjusted capitalisation benefits from a strong capital base of AED 662 million (USD 180 million) relative to gross written premiums of only AED 390 million (USD 106 million). The company has been able to grow its capital internally through stable operating performance and a high level of profit retention. Risk-adjusted capitalisation is expected to remain strong as the company grows. ASNIC has ample liquidity with AED 357 million (USD 97 million) in cash and deposits, but this is reliant on an AED 258 million (USD 70 million) overdraft facility.
ASNIC has a good franchise within the UAE and some geographical diversification, with business from Jordan representing 12% of gross written premium in 2014. Growth of up to 15% per annum is expected to improve the company’s market position.
ASNIC produced overall earnings in 2014 of AED 56 million (USD 15 million) due to profitable underwriting performance and a strong level of unrealised investment gains. ASNIC has been reviewing its underwriting approach, reducing business from under-performing classes and restructuring its Jordanian operation to improve technical performance. Given the concentration of the company’s investments in domestic real estate and one Saudi equity holding, operating performance is subject to volatility.
GGICO, ASNIC’s parent company with 50.25% of share capital, had bank loans and facilities totaling AED 2.8 billion (USD 0.76 billion) at year-end 2014. Its balance sheet is significantly exposed to equities and real estate investments that have been affected by market volatility in recent years. However, GGICO was able to secure a refinance agreement with its existing finance providers in 2012, and the debt is expected to be fully repaid by the end of 2018. A.M. Best notes that the largest portion of its loans is to be repaid in the later years, which could place further pressure on GGICO’s cash flow in the future.
Improvements in real estate and equity markets have improved GGICO’s financial position and operating performance over the past two years. Furthermore, despite the difficulties experienced by GGICO, pressure has not been placed on ASNIC to upstream dividends to its parent company. GGICO’s improved financial position and performance, coupled with low dividend pressure and limited influence at board level, limit any negative pressure on ASNIC.
Upward rating movement is likely to emanate from continued improvement in ASNIC’s operating performance, coupled with strengthening of enterprise risk management. Downward rating pressure could arise from a prolonged deterioration in operating results or difficulties experienced by GGICO in meeting its debt obligations.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe – Rating Services Limited Supplementary Disclosure.