LONDON-(BUSINESS WIRE)–AM Best affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of ‘bb+’ (Fair) of Arabia Insurance Company – Jordan (AICJ) (Jordan). The FSR outlook is stable, while the long-term ICR outlook is negative.
These credit ratings (ratings) reflect AICJ’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating results, limited business profile and appropriate enterprise risk management (ERM). The ratings also reflect, in the form of a boost, AICJ’s strategic importance to its ultimate parent company, Arabia Insurance Company sal (AIC).
The negative outlook for long-term ICR reflects negative pressure on AIC’s credit fundamentals.
AICJ’s balance sheet strength is supported by risk-adjusted capitalization, as measured by Best’s capital adequacy ratio, which was at a very high level at the end of 2021. An offsetting rating factor is AICJ’s high reinsurance reliance, driven by high cessions on its property risks. Although the majority of the company’s reinsurers are of strong credit quality, AICJ has significant credit exposure to unrated Jordanian companies. The balance sheet strength assessment also takes into account AICJ’s high level of debt-to-equity (75% at end-2021) and significant investment concentration in Jordan, partly due to regulatory constraints.
AICJ has a track record of generating positive operating results, exemplified by a five-year (2017-2021) weighted average return on equity of 2.5%, supported by positive and stable investment results and historically profitable underwriting performance. The company’s combined ratio deteriorated in 2021 to 112.3%, from 94.8% in 2020, mainly due to the strengthening of the material reserve of the compulsory car liability book in response to the social inflation observed in Jordan. This resulted in a total loss after tax of JOD 0.4 million for the year. AM Best expects future operating results to be adequate over the economic cycle, supported by actions taken by management to improve underwriting performance and sustainable investment results.
The limited valuation of AICJ’s business profile reflects its small market share in the crowded and fragmented Jordanian market. The company’s insurance portfolio is dominated by motor business on a net written premium basis, as other lines of business are heavily reinsured.
Although AICJ’s ERM framework is primarily evolving, it is considered commensurate with the size and complexity of its operations. AICJ’s ERM assessment influences the ongoing development that is expected to occur, particularly from the use of AIC’s risk management capabilities.
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