LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” (Fair) of Al-Sagr National Insurance Company P.S.C. (ASNIC) (United Arab Emirates). The outlook of these Credit Ratings (ratings) is negative. Concurrently, AM Best has withdrawn the ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect ASNIC’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
The negative outlooks reflect the potential for further weakening in balance sheet strength metrics, due to the potential for underwriting and/or investment losses.
The company’s adequate balance sheet strength assessment considers the erosion of ASNIC’s capital base in 2021 due to an AED 62.9 million net loss, which follows declines in its capital position in 2019 and 2020. ASNIC’s solvency coverage ratio is expected to be only marginally above its regulatory capital requirement as at year-end 2021. The company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is expected to be at the strong level at year-end 2021. The balance sheet strength assessment also considers ASNIC’s increased financial leverage as a result of its overdraft increasing by AED 107.2 million to reach AED 154.6 million at the end of 2021; ASNIC has required support from its overdraft facilities to manage the elevated claims experience. Furthermore, the company’s investment portfolio has a high concentration of volatile domestic real estate and equity assets.
ASNIC has a track record of adequate operating performance over recent years, evidenced by a five-year (2017-2021) average combined ratio of 99.0%, as calculated by AM Best. However, volatile investment results and high finance costs to service the overdraft facility have weighed on overall earnings, and the company has reported a five-year average (2017-2021) return-on-equity ratio of -1.2%. Operating results deteriorated significantly in 2021, with the company reporting a net loss of AED 62.9 million for the year, driven by underwriting losses on motor business and a share in net losses stemming from an associate, Al Sagr Co-operative Insurance Co.
ASNIC has a modest business profile as a midtier insurer in its domestic market, generating gross written premium of AED 517.7 million in 2021. There is some product diversification, but the company’s primary focus is on the motor and medical lines of business.
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