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Emirates Insurance Assigned 'A-' Ratings; Outlook Stable.

Standard & Poor's Ratings Services has assigned its 'A-' long-term counterparty credit and insurer financial strength ratings to Emirates Insurance Co. P.S.C. The outlook is stable.

The ratings reflect Standard & Poor's Ratings Services view of EIC's favorable competitive position owing to its track record of above-market underwriting performance and operational scale. EIC is the fourth-largest listed insurer in the United Arab Emirates (UAE). Its operating performance is strong, with a five-year combined ratio of 81 per cent, supported by low volatility in its loss ratios. (The combined ratio is a profitability measure of claims losses plus expenses; a ratio below 100 per cent signifies an underwriting profit.) These factors and Standard & Poor's Ratings Services view of industry risk in the UAE as intermediate support its assessment of EIC's business risk profile as satisfactory.

Standard & Poor's Ratings Services assesses the company's financial risk profile as strong, reflecting sustainable extremely strong capital adequacy and an intermediate risk position, which benefits from the nature of its investment portfolio.

Standard & Poor's Ratings Services combines its satisfactory business risk profile and strong financial risk profile assessments to derive our anchor of 'a-'. Other rating factors, such as management and governance, enterprise risk management, and liquidity, are neutral to the rating.

In Standard & Poor's Ratings Services' opinion, EIC has extremely strong risk-based capital adequacy that is resilient to underwriting event stress as well as potential volatility from its investment portfolio. The company is expanding domestically and especially abroad (through its international arm, based in Dubai), which Standard & Poor's Ratings Services views as introducing a measure of potential volatility to operating performance.

However, Standard & Poor's Ratings Services expect EIC to continue to outperform the market as a whole, aided by the control structures it has in place. EIC's capital base will be maintained by strong profitability through ongoing franchise growth, which Standard & Poor's Ratings Services do not expect to be materially different from market norms. Standard & Poor's Ratings Services base-case scenario is for premium income to increase by up to 10 per cent per year, in line with market norms, with a combined ratio below 93 per cent and net earnings of at least UAE dirham 90 million, representing a return on equity of above seven per cent.

Standard & Poor's Ratings Services assess EIC's risk position as intermediate. EIC has been steadily derisking its investment portfolio in recent years. On March 31, 2015, over 35 per cent of invested funds were in predominantly securely rated bank deposits and bond funds, and these alone give adequate cover to likely stressed liabilities. In Standard & Poor's Ratings Services opinion, however, the company does still carry a relatively high level of asset risk, typically equities, though this is in line with market norms and it recognises the effectiveness of the investment control framework. Standard & Poor's Ratings Services rating expectation is that, over time, EIC will continue to reduce its exposure to high-risk assets.

Standard & Poor's Ratings Services sees EIC's liquidity as exceptional, and anticipates that this will be maintained.

The stable outlook reflects Standard & Poor's Ratings Services expectation that the main factors underpinning EIC's satisfactory business risk profile and strong financial risk profile are unlikely to change materially over the next two years. Standard & Poor's Ratings Services anticipates that capital adequacy will remain extremely strong and resilient to any earnings pressure, and that EIC's technical profitability will remain high, and better than the market as a whole. Standard & Poor's Ratings Services anticipates its risk position to remain intermediate.

A negative rating action would be prompted by material weakening of earnings, leading Standard & Poor's Ratings Services to revise our assessments of the company's competitive position strengths and its financial profile owing to a significant deterioration of capital adequacy.

At this stage, Standard & Poor's Ratings Services considers a positive rating action unlikely. However, it could consider raising the ratings if EIC shows sustained outperformance of the local market, with controlled, profitable development of its international arm, increasing its operational scale.

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Publication:CPI Financial
Date:Aug 5, 2015
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