A.M. Best Co. has affirmed the financial strength rating of “B+” (Very Good) and the issuer credit rating (ICR) of “bbb-” of Lebanon’s Arab Reinsurance Company S.A.L. Best also removed the ratings from under review with negative implications and assigned a stable outlook.
“The under review status has been removed as A.M. Best believes that Arab Re’s management has taken immediate action to reduce the company’s investment exposure to domestic financial markets as well as maintaining the company fully operational in such an unstable environment,” the bulletin explained. “Furthermore, the social and economic instability in Lebanon has eased.
“The ratings reflect Arab Re’s improving current and prospective risk-adjusted capitalization and very good overall earnings, partially offset by the company’s limited premium base,” Best continued.
The rating agency said it “believes that Arab Re’s risk-adjusted capitalization is likely to significantly improve at the year-end 2006 mainly driven by the capital injection of $10 million to $40 million, a more conservative allocation of investments in countries with lower credit risk and improved risk management through the purchase of significant additional catastrophe excess of loss cover. “In 2007, Arab Re’s paid-up capital will further increase to $50 million.”
Best said it “remains confident that the current level of risk-adjusted capitalization is supportive of the projected net premium growth of 15-20 percent over the next two years.” It also indicated that “in its opinion “Arab Re’s overall earnings are likely to remain very good in 2006 and 2007, with a prospective combined ratio within 95-100 percent and net investment returns of approximately 5 percent.”
Best said it “believes that Arab Re has a small premium base which restricts its visibility in the international reinsurance market while maintaining its position of non-leading underwriter for the majority of its business. A.M. Best recognizes the company’s efforts to increase its premium income by approximately 15-20 percent over the next two years in order to further improve its already very good business profile with regards to geographical and segmental spread.”
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