(MENAFN Press) LONDON - Thursday, August 23rd 2012
A.M. Best Europe “ Rating Services Limited has assigned a financial strength rating of B (Good) and issuer credit rating of "bbb-" to Al-Sagr National Insurance Co. (Al Sagr) (United Arab Emirates). The outlook assigned to both ratings is stable.
The ratings reflect Al Sagr's strong level of risk-adjusted capitalisation and good local business profile within the UAE. Offsetting factors include the company's volatile operating performance and its leveraged balance sheet. Al Sagr's ratings also take into consideration its parent company, Gulf General Investment Company (GGICO), which has successfully undergone a restructuring of its debt.
Al Sagr's risk-adjusted capitalisation is strong and benefits from a large capital base of AED 570.7 million (USD 155.4 million), relative to a low net written premium and technical provision leverage. The company has been able to grow its capital internally through a good track record of operating performance and high level of profit retention. Furthermore, risk-adjusted capitalisation is expected to remain supportive of the company's projected growth of 10% to 15% over the coming years.
In A.M. Best's opinion, Al Sagr's business profile is good. Although its premium revenue decreased in recent years as a result of tightening underwriting guidelines, Al Sagr remains the ninth-largest UAE insurance company by gross written premiums. Premium is generated throughout UAE and also regionally through a subsidiary in Jordan. Dubai remains Al Sagr's main source of income; however, A.M. Best notes that other Emirates in UAE and also Al Sagr's Jordanian operation have been growing in importance in recent years.
Al Sagr's investment portfolio is inclined towards equities and real estate investments, which exposes the company to volatility of earnings through its non-technical account. Although investment yield has been stable at 3%, investment performance has been offset by large unrealized losses. Furthermore, underwriting performance has deteriorated in recent years as a result of negative performance in the medical business and losses emanating from the company's Jordanian operation.
Al Sagr has borrowing facilities in the form of overdrafts repayable upon demand that totalled AED 207.5 million in 2011. As a result, a large portion of the company's deposits are held under lien and are bearing a yearly finance cost of AED 11.5 million (USD 3.2 million). A.M. Best notes that the company's result has been partly offset by the cost of this facility but does not expect this to be fully repaid over the coming years. The net debt-to-equity ratio equaled 35.2% in 2011.
In addition, Al Sagr's parent company has bank loans and facilities totaling AED 3.45 billion, and due to the nature of its operation, equities and real estate investments also have been performing weakly in recent years. However, GGICO was able to secure a refinance agreement with its existing finance providers, and the debt is expected to be fully repaid by the end of 2018. However, A.M. Best notes that the largest portion of its loans is to be repaid in the later years, which could place further pressure on the company's cash flow in the future.
Over time, a material improvement in Al Sagr's operating performance, including its medical and its Jordanian operation, could place positive pressure on the ratings. A deterioration of the company's risk-adjusted capitalisation or difficulties experienced by GGICO in meeting its debt's amortization schedule could have a negative impact on Al Sagr's ratings.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: "Risk Management and the Rating Process for Insurance Companies"; "Assessing Country Risk"; "Understanding Universal BCAR"; and "Rating Members of Insurance Groups". Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.