Ratings Roundup: First Insurance, InterGlobal, Salama

January 25, 2013

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating of “bbb” of Jordan’s First Insurance Company (FIC), both with stable outlooks. The ratings reflect FIC’s “strong level of risk-adjusted capitalization, good overall financial performance and improving business profile,” said Best. “The ratings also take into consideration the recent acquisition of FIC’s majority stake by the Solidarity Group Holding BSC (c) (SGH) (Bahrain). FIC’s risk-adjusted capitalization of combined policyholders’ and shareholders’ funds is supported by the company’s low level of business leverage, a reinsurance program of good credit quality and a conservative investment profile.” Best noted that in the first nine months of 2012, “FIC wrote gross written premiums of JOD 18 million ($25 million) against a capital base of JOD 25 million ($35 million). Although risk-adjusted capitalization is likely to decrease over the medium term as the company grows its profile, it is likely to remain at a strong level.” Best also described FIC’s financial performance as “good on both the policyholders’ fund and shareholders’ fund. In 2011, the policyholders’ fund turned into a surplus after the fund repaid the totality of its Qard Hassan. The policyholders’ fund benefits from a good and improving level of technical performance and a stable investment income. The combined ratio decreased from 129 percent in the company’s first year of operation (2008) to 92 percent in 2011, and invested assets backing the policyholders’ fund returned JOD 40,431 {$56,983] (after discounting for the shareholders’ share of investment income). Furthermore, return over adjusted capital and surplus totaled approximately 2 percent in 2011 and 2010. FIC has successfully established itself within the Jordanian market since inception in 2007, growing to become a medium-sized company in only five years of operation. At half-year 2012, FIC was the fourth-largest insurance company by premium volume in Jordan with a market share of approximately 5 percent. Additionally, during 2012, FIC became the largest takaful company in the Jordanian insurance market, one of its targets at inception. SGH is an international Islamic-orientated financial service group based in Bahrain that invests in Islamic-orientated companies operating in the financial market, exclusively in insurance and asset management. SGH is one of FIC’s founding shareholders. In 2012, SGH acquired an additional 25.9 percent stake in FIC, making it FIC’s major shareholder with 50.9 percent ownership. Going forward, downward pressures could occur if FIC fails to execute its business plan or suffers a material deterioration of its risk-adjusted capitalization. Upward movement is unlikely over the medium term.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of the UK-based InterGlobal Insurance Company, both with stable outlooks. The ratings reflect InterGlobal’s “both strong and supportive level of risk-adjusted capitalization current and prospectively combined with the improving, though still weak, operating performance,” Best explained. As an offsetting factor Best cited the company’s “marginal underwriting result.” Best also noted that a “relatively significant capital injection from a new shareholder (from the insurance industry) at the end of 2011 boosted InterGlobal’s risk-adjusted capital, which combined with its recent decline in premium income and significant efforts in improving underwriting performance, is expected to remain supportive of its current ratings in the near future. InterGlobal took major actions to improve underwriting profitability including price increases, non-renewal of large loss-making accounts and changes to its internal organization of underwriting authority. Improving results on an underwriting year basis will be reflected on a financial year basis from 2012 onward, should no major losses happen. InterGlobal’s gross premium income declined in 2011 by 12 percent and is expected to be reduced by almost 10 percent by the close of year-end 2012. This decline is mostly driven by the company’s loss of non-profitable business, partially offset by rate increases in existing accounts. Downward rating pressures are the potential return to very poor underwriting profitability or a material decline in its risk-adjusted capitalization. There are no upward rating pressures.”

A.M. Best Europe – Rating Services Limited has downgraded the financial strength rating to ‘B++’ (Good) from ‘A’- (Excellent) and issuer credit rating to “bbb+” from “a-” of United Arab Emirates-based Islamic Arab Insurance Co. (Salama), and has removed the ratings from under review with negative implications and assigned a negative outlook. Concurrently, Best said it has withdrawn the ratings as the company has requested to no longer participate in Best’s interactive rating process. “The rating actions are due to the uncertainty regarding Salama’s main subsidiary, BEST RE (L) Limited (BEST RE) (Malaysia), and the potential implications for Salama’s capitalization, operating performance and profile. Salama’s performance in the first three quarters of 2012 was affected by the adverse development of Thailand flood losses at BEST RE, with Salama’s loss ratio rising to 76 percent, against 57 percent in the same period in 2011. BEST RE represented 66 percent of Salama’s gross written premiums in 2011, and therefore is material to the group,” Best explained.

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