Best’s News & Research Service - October 30, 2014 11:46 AM (EDT)
A.M. Best Affirms Ratings of Saudi United Cooperative Insurance Company (Wala'a)
London //BestWire// - A.M. Best has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of "bbb" of Saudi United Cooperative Insurance Company (Wala'a) (Saudi Arabia). The outlook for both ratings remains stable.
The ratings reflect the company's adequate risk-adjusted capitalisation, solid overall earnings and developing local business profile. An offsetting rating factor is the strain on the company's underwriting performance following poor performance on its compulsory motor business line.
The company's risk-adjusted capitalisation declined materially during 2014, but remained supportive of the current ratings. This followed the strategic decision by Wala'a to increase its premium revenue by targeting retail motor business and tendering for a number of large property and engineering contracts. The reduction in capital adequacy is principally driven by net premium growth above 75% for 2014. The company's capital position is likely to be bolstered to previously stronger levels following an anticipated rights issue in early 2015, doubling shareholders paid-up capital from SAR 200 million (USD 53 million) to SAR 400 million (USD 106 million). Proceeds from the rights issue are expected to support increasing levels of underwriting activity and higher premium retention. The company's capitalisation is projected to remain strong following the capital injection in 2015 through good internal capital generation and by maintaining a sufficient buffer for strategic initiatives over the next few years.
Wala'a has developed a good track record of overall earnings with profitability improving in each of the past four years. Wala'a was one of the few companies in Saudi Arabia to show a profit in 2013, producing an overall profit before tax (Zakat) of SAR 25 million (USD 7 million). For 2014, Wala'a is expected to report a weak technical performance, with strong realised gains on its equity investments likely to offset underwriting losses. The weak underwriting performance is driven by a large claim for its property business and attritional losses within compulsory motor. The implementation of the regulator's mandated rate increase in the second half of 2014 has helped improve performance slightly; however, the real effect of these actions is likely to be seen during 2015.
Upward rating movement could arise if Wala'a is able to maintain strong risk-adjusted capitalisation and robust underwriting performance as it grows its franchise. Downward rating pressure could arise through a reduction in risk-adjusted capitalisation or a prolonged deterioration in profitability.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Takaful (Shari'a Compliant) Insurance Companies
- Understanding Universal BCAR
- Evaluating Country Risk
- Risk Management and the Rating Process for Insurance Companies
- Catastrophe Analysis in A.M. Best Ratings
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This rating announcement has been issued by A.M. Best Europe - Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.