LONDON–(BUSINESS WIRE)–AM Best has downgraded the Financial Strength Rating to B (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating to “bb+” from “bbb-” of Al-Sagr National Insurance Company P.S.C. (ASNIC) (United Arab Emirates). The outlook for each Credit Rating (rating) has been revised to stable from negative.
The ratings reflect ASNIC’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
The rating downgrades reflect a material deterioration in ASNIC’s risk-adjusted capitalisation to the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR), reflecting lower shareholders’ funds due to two consecutive years of accounting restatements.
The company had reported shareholders’ equity of AED 452.8 million at year-end 2018. However, shareholders’ equity in 2019 fell by 21.4% to AED 356.0 million and a further 10.0% in 2020 to AED 320.3 million due to accounting restatements. The restatements reflected material impairments to the company’s private equity holdings, as well as its insurance and related-party receivables. The company’s balance sheet strength assessment also factors in the high concentration of volatile domestic real estate and equity assets in its investment portfolio and an increase in underwriting risk following very strong premium growth in 2020. ASNIC’s liquidity position continues to require support from its overdraft facilities; however, the company has reduced its debt in recent years.
ASNIC has achieved consistent underwriting profitability in recent years, evidenced by a five-year (2016-2020) average combined ratio of 95.8%. However, volatile investment results and finance costs to service the overdraft facility have weighed on overall earnings and the company has achieved only a moderate five-year average (2016-2020) return-on-equity ratio of 3.3%. In 2020, ASNIC reported higher net profits of AED 4.3 million (2019: AED 3.1 million), driven primarily by improved underwriting results, partly offset by losses from an equity accounted associate.
ASNIC has a modest business profile as a mid-tier insurer in the UAE market, generating gross written premiums of AED 525.5 million in 2020. There is some product diversification, but the company’s primary focus is on the motor and medical lines of business.
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