LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Al Fujairah National Insurance Company PSJC (AFNIC) (United Arab Emirates) [UAE]. The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect AFNIC’s balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management (ERM). The ratings also reflect rating enhancement from AFNIC’s majority shareholder, the Government of Fujairah – Department of Industry and Economy, which holds in excess of 80% of AFNIC. The government of Fujairah has demonstrated capital support to AFNIC through past capital injections and allowing the accumulation of capital at the company through bonus shares in lieu of cash distributions.
The negative outlook reflects AFNIC’s loss making operating results, reported since 2022, which places pressure on AM Best’s operating performance assessment of strong. Under IFRS 17, the company reported a net loss of AED 8.0 million for year-end 2023, largely the result of poor technical performance, which has been offset partially by positive investment returns. AM Best notes that following remedial actions taken by the company’s management, AFNIC’s underwriting performance improved for the first nine months of 2024, with the company reporting a positive insurance service result.
AFNIC’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the strong level at year-end 2023. AM Best expects that BCAR scores will return to at least the very strong level at year-end 2024, following actions taken during the year to improve the company’s balance sheet strength and boost its regulatory solvency position, primarily through the partial de-risking of its investment portfolio. Despite a redefined investment strategy, AFNIC’s equity portfolio is largely concentrated to a single strategic holding, which keeps investment risk elevated.
AFNIC’s operations are concentrated in the competitive and highly fragmented UAE non-life insurance market, where it writes a small share of total market premiums. AFNIC maintains a unique position in the market, benefitting from some preferential access to government originated business in the Emirate of Fujairah. AFNIC reported a growth of 22% in insurance revenue to AED 282 million in 2023, driven by growth across the motor, engineering, fire and general accident lines. Continued growth has been observed over the first nine months of 2024, largely the result of regulatory intervention on market motor rates and new business opportunities.
AM Best considers AFNIC’s ERM framework and capabilities as marginal for the size and complexity of its operations. Nonetheless, AM Best recognises efforts made to further formalise the ERM framework, which is expected to continue to develop in line with the company’s risk profile and enhanced regulatory requirements.
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