Ratings Roundup: AM France, Arab Orient, Gulf Insurance Co.

June 14, 2013

A.M. Best Europe – Rating Services Limited has upgraded the financial strength rating to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit rating to “a” from “a-” of Assurances Mutuelles de France (AM), both with stable outlooks. Best explained that the upgrade of the ratings for AM “reflect the increased financial flexibility provided by its affiliate membership in the Société de Groupe d’Assurance Mutuelle (SGAM) Covéa, a leading insurance group in France. This follows Covéa’s internal restructuring that led to the creation of the intermediate holding company Covéa Coopérations, under which the operating entities of the Covéa group are gathered. At year-end 2012, AM owned 14.71 percent of Covéa Coopérations.” Best added that its “assessment of AM’s ratings factors in the benefits of its membership in Covéa, which include the possibility of financial support for members of the SGAM. These members include La Garantie Mutuelle des Fonctionnaires, MAAF Assurances, MAAF Santé, MMA IARD Assurances Mutuelles, MMA Vie Assurances Mutuelles and DAS Assurances Mutuelles, in addition to AM. “Best also noted that its ratings of AM “reflect its excellent risk-adjusted capitalization after taking into account the impact of its significant investments in affiliated companies. Although these investments have decreased in 2012, following the Covéa internal restructuring, they still represent around half of AM’s total assets. In Best’s Capital Adequacy Ratio (BCAR) model, these investments are effectively deducted from capital resources.” In its assessment of this treatment of the affiliated investments, Best said it “believes that AM provides strong capital support for its operations. In conclusion Best said: “Upward pressure on the ratings is unlikely at this point. Downward pressure on the ratings could be triggered by changes in AM’s membership in the SGAM Covéa or any changes in the SGAM’s structure and governance that would impair AM’s financial flexibility, or any deterioration in the credit fundamentals of the SGAM Covéa.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of Jordan’s Arab Orient Insurance Company (GIG | AOIC).The outlook for both ratings remains stable. “The ratings reflect GIG | AOIC’s leading position in its local insurance market, its robust profitability and adequate level of risk-adjusted capitalization,” Best explained. “The company’s concentrated business profile and recent growth strategy are considered offsetting rating factors. The ratings also incorporate the implicit support offered from the company’s parent, Gulf Insurance Company K.S.C. (GIC). GIG | AOIC is of strategic importance to GIC, of which it accounted for 21 percent of gross written premiums and 26 percent of underwriting profits in 2012. Along with technical support in areas such as reinsurance purchasing, risk management and reserving, GIG | AOIC also is a part of GIC’s campaign to rebrand its subsidiaries under a united Gulf Insurance Group (GIG) brand.” Best noted that in “2012, GIG | AOIC grew its gross written premiums by 19 percent to JOD 82.6 million ($116.7 million), which was notably ahead of the overall market growth rate of approximately 6 percent. GIG | AOIC has further enhanced its position as market leader, as measured by gross written premiums, with a market share of approximately 18 percent. GIG | AOIC’s portfolio continues to be concentrated towards medical and motor risks, which together accounted for 81 percent and 93 percent of the company’s gross and net written premiums in 2012, respectively. GIG | AOIC’s level of risk-adjusted capitalization remains at an adequate level, despite some deterioration in 2012, due to material business growth.” Best indicated that the insurer’s “capitalization is supported by a low level of risk retention, a good reinsurance panel of good credit quality and a conservative investment strategy. On a stressed basis, after the consideration of GIG | AOIC’s potential exposure to catastrophic perils, the company’s level of capitalization is at a marginal level, although remains supportive of the rating. Furthermore, the company’s assessment of its catastrophic exposure is unsophisticated, with catastrophe scenarios assessed with support from reinsurers. Although GIG | AOIC’s underwriting profitability deteriorated in 2012 due to a higher frequency of medical losses, its combined ratio remains at a good level of 89 percent. GIG | AOIC’s overall profits have been stable in recent years and benefit from a low risk investment strategy, where investments are largely focused in cash and deposits with local banks. In conclusion Best indicated that there “will be positive pressure on GIG | AOIC’s ratings over the medium term should it continue to defend its strong market position while ensuring a good level of operating performance and risk-adjusted capitalization. Deteriorating profitability could add negative pressure to the company’s ratings given its high reinsurance dependence.” Best also said it is “monitoring the growth strategy of GIG | AOIC in line with its capital needs, which is considered to be a source of future negative pressure on the ratings.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A-‘ (Excellent) and the issuer credit ratings of “a-” of Kuwait-domiciled Gulf Insurance Company K.S.C. (GIC) and its subsidiary, Gulf Life Insurance Co. K.S.C. (Closed) (GLIC). Best said the “ratings of GIC reflect its good regional business profile, good level of overall profitability and supportive level of risk-adjusted capitalization. Furthermore, the ratings of GLIC reflect a meaningful rating enhancement from GIC, given the implicit support received, in addition to its sound business profile within Kuwait and good level of technical profitability.” Best explained that “GIC has a leading competitive market position in Kuwait via its stand-alone operations and those of GLIC and Bahrain Kuwait Insurance Company B.S.C. (BKIC). Additionally, the group has strong competitive positions within the Jordanian, Bahraini and Egyptian markets via its subsidiaries, Arab Orient Insurance Company, BKIC and Arab Misr insurance Group S.A.E. GIC has further interests in the insurance markets of Syria, Iraq, Lebanon, Saud Arabia and the United Arab Emirates via other subsidiaries and affiliated companies. GIC has one of the most diverse business profiles of any insurance group based in the Middle East and North Africa (MENA) region. In 2012, GIC wrote consolidated gross written premiums of KD 148.8 million ($529 million), a growth of 9 percent from the prior year.” Best said it “anticipates that over the medium term, GIC will continue to grow its premium base and expand its geographical footprint both organically and through acquisition. Underwriting results for GIC were again good in 2012. A combined ratio for non-life business of 82 percent was achieved, which is in line with the group’s five-year average of 84 percent. Overall results continue to be heavily influenced by good underwriting profitability, with an underwriting surplus of KD 9 million ($31 million) in 2012 accounting for 78 percent of the group’s overall profit after tax of KD 11 million ($40 million). GIC has maintained a good level of financial performance despite political unrest in a number of its operating territories.” Best also noted that “GIC’s level of risk-adjusted capitalization is supportive of its current rating level. The group’s capital position benefits from a group-wide reinsurance program of good credit quality and a moderate level of business leverage (i.e., gross written premiums/capital and surplus). In recent years, GIC’s level of risk-adjusted capitalization has benefitted from divestment from higher risk asset classes. Furthermore, over the past two years, GIC has made a significant investment into its risk management framework and tools. Although still unfinished and unseasoned, GIC’s management has substantially improved its capital management capabilities. There will be positive pressure on GIC’s ratings if it is able to improve its level of risk-adjusted capitalization to an excellent level and maintain its already strong level of operating performance and business profile. There will be negative pressure on GIC’s ratings if the group is unable to maintain its good level of risk-adjusted capitalization.”

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