AM Best confirms the credit ratings of Arabia Insurance Company sal

LONDON-(BUSINESS WIRE)–AM Best affirmed the B+ (Good) financial strength rating and the ‘bbb-‘ (Good) long-term issuer credit rating of Arabia Insurance Company sal (AIC) (Lebanon). The outlook for these credit ratings (ratings) is negative.

The ratings reflect the strength of AIC’s balance sheet, which AM Best rates as strong, as well as its adequate operating results, neutral business profile and appropriate enterprise risk management (ERM).

The negative outlook reflects continued sovereign risk pressure on AIC’s credit profile arising from its exposure to Lebanon, where its head office is located and approximately 8% of total investments and 3% of revenues are held in 2021. The negative outlook also are a factor in the company’s use of debt to support its operations and the significant refinancing risk associated with its exposure to short-term debt.

AIC’s balance sheet strength is supported by risk-adjusted capitalization at the strongest level as measured by Best’s Capital Adequacy Ratio (BCAR). The rating factors are the solid geographical diversification of AIC’s exposures in terms of operations and assets, which to some extent insulates the group from the very high risks of the political, economic and financial system in Lebanon. A partially offsetting rating factor is the limited fungibility of AIC’s capital, constrained by increased regulatory solvency requirements in the jurisdictions in which the group operates.

AIC has a track record of adequate operating results demonstrated by a five-year (2017-2021) weighted average return on equity (ROE) of 1.2%. Results have deteriorated over the past two years, negatively impacted by one-off events including the Beirut port explosion in 2020 and the devaluation of the Lebanese pound in 2021, translating into ROEs of -6.2% and 0.0% each from these years, respectively AM Best expects future operating results to improve and support adequate valuation over the economic cycle, benefiting from actions taken by management to rationalize the insurance portfolio and supported by a stable investment return, in line with 5.6% (including profits ), achieved in 2021.

AIC’s portfolio is well diversified geographically in the Middle East, where the group benefits from a good reputation and well-recognized brand through a network of branches and affiliates. However, the group’s modest footprint in most of its core markets limits its competitive position.

AM Best considers political and regulatory risks to be among the biggest threats to AIC. The appropriate ERM assessment takes into account AM Best’s expectation that AIC will continue to develop its risk management framework and risk management capabilities to adapt to the changing nature of its markets in a sustainable manner.

This press release refers to the credit ratings that are published on the AM Best website. For all rating information relating to the release and related disclosures, including details of the agency responsible for issuing each of the individual ratings mentioned in this release, please see AM Best’s web page for recent rating activities. For further information on the use and limitations of credit score opinions, please see Best’s Guide to Credit Scores. For information on the proper use of Best’s credit ratings, Best’s performance ratings, Best’s preliminary credit ratings, and AM Best’s press releases, please see the Guide to the Proper Use of Best’s Ratings and Ratings.

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