17/08/2013 07:25 AST

A.M. Best Europe - Rating Services Limited has affirmed the financial strength rating of B+ (Good) and 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 and sound business profile within the United Arab Emirates (UAE). An offsetting factor is the company's volatile investment performance. ASNIC's ratings are subject to drag from its parent company, Gulf General Investment Company P.S.C. (GGICO).

ASNIC's risk-adjusted capitalisation benefits from a strong equity base supporting low underwriting leverage, with capital requirements mainly driven by investments. The company has been able to grow its capital internally through a good track record of operating performance and a high level of profit retention.

ASNIC maintains a good franchise within the UAE despite premium revenue decreasing in recent years, as the company restructures its operation to improve profitability. The company's profile benefits from diversification through its majority owned subsidiary, Jordan Emirates Insurance Company PSC (JEIC), which represented 25 per cent of gross written premium in 2012.

ASNIC produced overall earnings in 2012 of AED 29 million ($7.9 million) mainly as a result of improving underwriting performance. This was driven by stricter underwriting controls on its medical business and restructuring of the management team and underwriting practices within the Jordanian subsidiary. Favourable unrealised gains from its equity portfolio contributed to profitability. However, due to the concentration of investments in local property and one Saudi equity holding, performance is subject to volatility.

GGICO is significantly exposed to equities and real estate investments, which have been hard hit by market conditions in recent years. The company has bank loans and credit facilities totalling AED 3.4 billion ($0.93 billion) against net equity of AED 1.2 billion ($0.33 billion). However, in 2012 GGICO was able to secure a refinancing agreement with its existing credit providers 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.

Over time, a material improvement in ASNIC's risk-management capability and reduced volatility emanating from its investment portfolio could produce positive ratings movement. A material deterioration of ASNIC's risk-adjusted capitalisation or difficulties experienced by GGICO in meeting its debt amortisation schedule could have a negative impact on the company's ratings.


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