LONDON: AM Best has revised the outlooks to stable from positive and affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” of Jordan French Insurance Company Limited (JOFICO) (Jordan).
The ratings reflect JOFICO’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The revision of the outlooks to stable from positive reflects the persistently high level of receivables on JOFICO’s balance sheet, which generate liquidity strains for the company, and have the potential to impact its risk-adjusted capitalisation and operating performance in case of impairment.
JOFICO’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Offsetting factors include the company’s significant dependence on reinsurance, partially mitigated by a reinsurance panel of good credit quality. The assessment also factors in JOFICO’s marginal liquidity position, and small capital base, which heightens the sensitivity of its solvency position to potential shocks.
JOFICO has a track record of adequate operating performance, demonstrated by a five-year (2014-2018) weighted average combined ratio of 93.6%. Increasing pressures in Jordan’s motor market have led to a steady increase in the loss ratios over the past two years, reaching 72% in 2018 (as calculated by AM Best). Nonetheless, AM Best expects the company to maintain a double-digit return-on-equity ratio over the medium term, supported by solid technical profitability.
JOFICO has a limited business profile as a mid-tier insurer in Jordan, ranking eighth in the local insurance market based on 2018 gross written premiums. Although the company’s competitive position benefits from a number of long-term client relationships, the insurance market in Jordan is relatively small by international standards with limited growth opportunities.
JOFICO’s ERM framework is developing, with control and oversight of key risks conducted on a silo basis, and typically reactive in nature. Despite this, JOFICO’s risk management capabilities typically are aligned with the profile of its key risks.
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