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FOR IMMEDIATE RELEASE
LONDON - OCTOBER 12, 2016 11:16 AM (EDT)
A.M. Best has downgraded the Financial Strength Rating to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating to “bbb-” from “bbb” of Middle East Insurance Company Plc (MEICO) (Jordan). The outlook of these Credit Ratings (ratings) has been revised to stable from negative.
The rating downgrades consider MEICO’s marginal level of risk-adjusted capitalisation, reflecting an investment portfolio that is concentrated in local real estate and equities, which together accounted for over 90% of the company’s total investments at year-end 2015. Management has taken actions to de-risk the company’s balance sheet, including the disposal of real estate investments, and whilst the company has realised significant gains during the first half of 2016, there has only been a modest improvement in risk-adjusted capitalisation. Internal capital generation has been limited in the past by an onerous dividend policy, and the concentrated investment portfolio, coupled with a slim capital buffer, exposes the company’s risk-adjusted capitalisation to potential volatility. In addition, the company remains exposed to the economic and financial system risks associated with Jordan, where it is domiciled and concentrates its operations. Going forward, A.M. Best expects MEICO to maintain a level of risk-adjusted capitalisation supportive of the current rating level, complemented by good results.
MEICO has generated operating profits in each year since inception, equally supported by investment income and technical results. In 2015, underwriting profits rose 3% to JOD 1.9 million (USD 2.6 million) in comparison with 2014, which translated into a combined ratio of 89%. A solid five-year average (2011-2015) loss ratio of 71% is further testimony of the company’s underwriting discipline, and MEICO benefits from an unleveraged balance sheet following the full repayment of loans during the first half of 2016.
MEICO remains one of the leading insurers in Jordan despite gross written premium in 2015 falling marginally to JOD 34 million (USD 48 million), from JOD 35 million (USD 50 million) in 2014. The reduction was chiefly driven by the low oil price environment, which negatively affected premium volumes for marine cargo business. A.M. Best notes, however, that growth resumed in the first half of 2016, with the company reporting gross written premium up 4% compared with the same period in 2015.
This press release relates to Credit Ratings that have been published on A.M. 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 A.M. 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.
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