Best Revises Outlook for Union Insurance in United Arab Emirates

October 31, 2014

A.M. Best has revised the outlook to positive from stable for the issuer credit rating (ICR) of Union Insurance Company P.S.C. (Union) (United Arab Emirates). At the same time, A.M. Best has affirmed the financial strength rating (FSR) of B++ (Good) and the ICR of “bbb” of Union. The outlook for the FSR remains stable.

The ratings reflect Union’s strong risk-adjusted capitalization and developing business profile. An offsetting rating factor is the company’s investment profile, which is concentrated toward domestic equities and real estate. The revised ICR outlook reflects the company’s improving technical performance, following the appointment of new management.

Union’s technical operations returned to profit during 2013 and maintained solid results for the first nine months of 2014, generating pre-tax operating profits of AED 66.7 million (USD 18.2 million) and AED 43.8 million (USD 11.9 million), respectively. The improvement in its technical performance reflects remedial actions taken by the company’s new management following their appointment in Q2 2012. The company has tightened its underwriting controls and risk selection process, with a focus on profitability over non-performing business segments. Prospective earnings are expected to remain volatile due to Union’s high exposure to real estate and equity investments.

Union’s risk-adjusted capitalization strengthened during 2013, reflecting a 28.3 percent rise in the company’s capital and surplus to AED 329.4 million (USD 89.7 million), following full retention of earnings. The growth in capital and surplus has been more than sufficient to offset increased underwriting, investment and credit risk during the period. Prospective risk-adjusted capitalization is anticipated to remain commensurate with the current rating level, supported by strong internal capital generation.

Union’s business profile and market presence within the United Arab Emirates (UAE) has improved since the appointment of new management. The company has taken action to quickly remedy historical underwriting issues and drive profitable growth in its domestic market. As well as increasing its non-life market share, the company received a license to commence underwriting life business during January 2013. Despite management’s successful execution of its business plan to date, the competitive market which persists in the UAE presents significant challenges for the company to achieve its medium-term strategic targets.

Positive rating actions are likely to be driven by the company demonstrating a track record of profitability and developing a strong business profile. Negative rating actions may arise if operating performance were to deteriorate, or if the company is unable to successfully implement its medium-term business plan.

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