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

16/09/2009 00:00 AST

Moodys Investors Service has today assigned a first-time insurance financial strength rating (IFSR) of A3 to Al-Ain Ahlia Insurance Co, which is based in Abu Dhabi in the United Arab Emirates.

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, Moodys assesses Al-Ain Ahlia as a Government-Related Issuer (GRI).

In accordance with Moodys 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 companys 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 Moodys 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 Ahlias profitability is good, although Moodys recognizes that there is some volatility of business line performance due to the companys 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, Moodys 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.

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