AM Best Revises Issuer Credit Rating Outlook to Stable of Al Dhafra Insurance Company P.S.C.

AM Best has revised the outlook to stable from negative for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” (Good) of Al Dhafra Insurance Company P.S.C. (ADIC) (United Arab Emirates) [UAE]. The outlook of the FSR is stable.

The Credit Ratings (ratings) reflect ADIC’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

The revised Long-Term ICR outlook to stable from negative reflects improvements in ADIC’s operating performance reported as of 30 September 2023 (Q3 2023), and the expectation of improving underwriting conditions on the motor segment in the UAE market.

Historically, ADIC has reported a strong track record of operating performance, demonstrated by a five-year (2018-2022) weighted average return-on-equity ratio of 12.5%. However, in light of the heightened competitive environment in the UAE insurance market, ADIC’s profitability decreased below historical averages in recent years driven by a weakening in the company’s underwriting performance, notably on the motor and medical books of business. Nevertheless, as of Q3 2023, under IFRS17, the company reported a material increase in profit to AED 45.4 million (Q3 2022: AED 16.6 million), mainly driven by higher investment income and marginal improvement in underwriting performance. Prospectively, ADIC’s technical performance is expected to benefit in the short to medium term from the decision of the Central Bank of the UAE to remove the 50% discounts it previously allowed on mandatory third-party liability motor premium, which should ease the underwriting condition in the UAE.

ADIC’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s balance sheet strength also is supported by a strong liquidity position, with cash and deposits covering net technical reserves by over 200% at year-end 2022 and as at Q3 2023. Offsetting factors in the balance sheet strength assessment include ADIC’s investment concentration toward domestic equities and its high reinsurance dependence with an average premium retention below 30% over the past five years; although, the associated credit risk is mitigated partially by the use of a well-diversified reinsurance panel of sound financial strength.

AM Best assesses ADIC’s business profile as limited, reflective of its market position as a mid-tier player in the UAE insurance market. For year-end 2022, the company reported AED 317.4 million (USD 86.5 million) of gross written premium. The company’s underwriting portfolio is concentrated geographically in the highly competitive UAE market. While ADIC benefits from a diversified underwriting profile by line of business on a gross basis, its retained portfolio has greater concentration in the motor and medical lines of business.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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