LONDON — AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Arab Reinsurance Company S.A.L. (Arab Re) (Lebanon).
These Credit Ratings (ratings) reflect Arab Re’s balance sheet strength, which AM Best categorises as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management.
The revision of the outlooks to negative reflects pressures on the business profile assessment, stemming from AM Best’s concerns over Arab Re’s strategic direction, in a context of increasingly challenging market conditions.
Arab Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which is comfortably maintained at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), reflective of the company’s low underwriting leverage. Risk-adjusted capitalisation strengthened in 2015 and 2016, following the shareholders’ decision to forgo dividend payments. With capital and surplus reaching USD 102.9 million at year-end 2017, Arab Re’s capital base is sufficient to absorb the asset and credit risks arising from elevated exposure to Lebanese investments, notably Lebanon sovereign debt and cash deposits in banks, and unrated retrocession receivables.
Arab Re has a track record of marginal operating profitability, with a five-year (2013-2017) weighted average return on equity of 3.9% and return on premium of 7.4%. Whilst operating profit remains supported by robust investment returns, the company has experienced weak technical performance in recent years, with ongoing difficult underwriting conditions resulting in a five-year weighted average combined ratio of 106.7%. Arab Re’s net income increased marginally to USD 4.5 million in 2017 following a slight improvement in net operating expenses. The cancellation of loss making accounts is expected to improve the company’s technical results in the longer term; however, combined ratios are likely to remain above 100% in the next few years.
Arab Re has a niche position in its core markets in the Middle East and North Africa (MENA) region, built upon its original role as a reinsurer for the Arab insurance market and longstanding relationships with cedants. However, the company’s business profile has been under pressure in recent years, impacted by its decision to withdraw from non-core markets and certain lines of business, in an effort to improve technical profitability. This, combined with a lack of growth opportunities in core markets, has resulted in gross written premium decreasing by approximately 25% to USD 64 million between 2013 and 2017.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.
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CONTACTS: Charlotte Vigier Christopher Sharkey
Senior Financial Analyst Manager, Public Relations
+44 20 7397 0270 +1 908 439 2200, ext. 5159
charlotte.vigier@ambest.com christopher.sharkey@ambest.com
Ghislain Le Cam, CFA, FRM Jim Peavy
Director, Analytics Director, Public Relations
+44 20 7397 0268 +1 908 439 2200, ext. 5644
ghislain.lecam@ambest.com james.peavy@ambest.com
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