A.M. Best Europe – Rating Services Limited has assigned the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” to Saudi Arabia’s Saudi United Cooperative Insurance Company (Wala’a), both with stable outlooks.
The ratings reflect the company’s “adequate level of risk-adjusted capitalization, developing local business profile and improving operating performance,” Best explained.
The ratings announcement also noted that “despite the company’s start up nature, Wala’a is seen as a natural transition from Amity Insurance Company, which operated in Saudi Arabia during the pre-regulatory era.
“Most of the management team and a portion of the founding shareholders of Wala’a have a good understanding of the Saudi Arabia market as a result of this development. This has allowed Wala’a to rapidly achieve a good position in the local market where it is ranked as the 19th largest insurance company by gross written premium and ninth by net profit as at the second quarter of 2012.” However, Best added that it “expects growth to slow in the coming years as Wala’a is likely to be challenged by fierce competition and tightening underwriting guidelines.”
Best said the “company’s level of risk-adjusted capitalization is adequate and is expected to remain at this level as Wala’a grows. Its risk-adjusted capitalization is supported by a relatively conservative investment portfolio and a reinsurance program of good credit quality. Over the coming years, Wala’a will be retaining its profits as its level of capital is currently below the minimum required level, as seen with numerous companies in the market.”
As of the second quarter of 2012, the capital and surplus of Wala’a stood at SAR 162.2 million ($43.3 million), in contrast with SAR 200 million ($53.4 million) required by the regulator for companies that also write reinsurance inward business. Best indicated that “Wala’a has many options in terms of actions that could be taken to comply with the minimum required level imposed by the regulator, such as increasing its paid-up capital or revoking its reinsurance license. In addition, Wala’a is adequately above the solvency requirements.
“The operating performance of Wala’a has been improving since its inception. After incurring two consecutive losses in the first two years of operation, 2009 and 2010, the company achieved operational profitability in 2011.In 2011, net profit before tax reached almost SAR 4.6 million ($1.2 million), representing a return on capital and surplus of 1.77 percent. In addition, as per second quarter 2012 financials, net profit in the period reached SAR 6.6 million ($1.86 million), underpinned by a good level of investment return and underwriting performance.
“Over the medium term, an improvement in the company’s risk-adjusted capitalization while maintaining a good operating performance could place upward movement in the ratings. A deterioration in its financial performance or risk-adjusted capitalization could add negative pressures to the ratings.”
Source: A.M. Best