AM Best downgrades the credit rating of the issuer of Al-Sagr National Insurance Company PSC

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LONDON– (BUSINESS WIRE) –
AM Best downgraded the issuer’s long-term credit rating (long-term ICR) to “bb” (Fair) from “bb +” (Fair) and confirmed the financial strength rating of B (Fair) from Al- Sagr National Insurance Company PSC (ASNIC) (United Arab Emirates). The outlook for these credit ratings (ratings) has been revised from stable to negative.

The ratings reflect the strength of ASNIC’s balance sheet, which AM Best considers adequate, as well as its adequate operational performance, its limited commercial profile and its marginal management of business risks.

Long-term ICR downgrade reflects continued erosion of ASNIC’s capital base following a net loss of AED 39.2 million for the nine-month period ended September 30, 2021. At the end of the third quarter of 2021, ASNIC reported capital and surplus of AED 281.1 million, a decrease of 12% from the end of 2020. This follows the decline in the the company’s capital situation in 2019 and 2020. At the end of the third quarter of 2021, ASNIC held regulatory capital equal to 111% of its solvency requirement. AM Best expects that figure to drop below 105% by the end of 2021, posing a high risk of regulatory solvency violation. The company’s risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), is expected to deteriorate at the end of 2021, while remaining narrowly at a very high level. The degradation of the long-term ICR also takes into account the increase in ASNIC’s financial leverage due to the increase in its overdraft from AED 90.8 million to reach AED 138.2 million at the end of the third quarter of 2021; ASNIC needed the support of its overdraft facilities to manage the high level of complaints experience. The company’s investment portfolio contains a high concentration of volatile domestic real estate and stock market assets. The negative outlook reflects the potential for further weakening measures of balance sheet strength, due to the potential for further operating and / or investment losses.

ASNIC has posted satisfactory operational performance over the past few years, as evidenced by an average combined ratio over five years (2016-2020) of 95.8%. However, volatile investment results and the financial costs of servicing the overdraft facility weighed on overall earnings and the company only achieved a five-year average return on equity ratio (2016-2020 ) moderate 3.3%. Operating results deteriorated significantly in 2021, with a net loss of AED 39.2 million for the nine-month period, due to technical losses on the automotive business and a share in the net losses of an associate, Al Sagr Insurance Cooperative.

ASNIC has a modest commercial profile as an intermediary insurer in the United Arab Emirates market, generating gross written premiums of AED525.5 million in 2020. There is some product diversification, but the company is primarily focused on the automotive and medical sectors.

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Algirdas Karvelis
Financial Analyst

+44 20 7397 0285

[email protected]

Michael dunckley
Associate Director, Analytics

+44 20 7397 0276

[email protected]

Christophe sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Jim peavy
Director, Communications

+1 908 439 2200, ext. 5644

[email protected]

Source: AM Best

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