AM Best


A.M. Best Upgrades Ratings of Al-Sagr National Insurance Company P.S.C.


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Salman Siddiqui, ACA
Financial Analyst
+(44) 20 7397 0311
salman.siddiqui@ambest.com

Mahesh Mistry
Director, Analytics
+(44) 20 7397 0325
mahesh.mistry@ambest.com


Christopher Sharkey
Manager, Public Relations
+(1) 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
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james.peavy@ambest.com

FOR IMMEDIATE RELEASE

LONDON - JULY 25, 2014 09:41 AM (EDT)
A.M. Best has upgraded the financial strength rating to B++ (Good) from B+ (Good) and the issuer credit rating to "bbb" from "bbb-" of Al-Sagr National Insurance Company P.S.C. (ASNIC) (United Arab Emirates). The outlook for both ratings remains stable.

The upgrade reflects the improved financial position and performance of its parent company Gulf General Investment Co. P.S.C. (GGICO). The ratings also reflect ASNIC's strong level of risk-adjusted capitalisation and good business profile within the UAE. An offsetting factor is the company's volatile investment performance.

GGICO, ASNIC's parent company with 52% of share capital, had bank loans and facilities totaling AED 3.1 billion (USD 0.85 billion) as at year-end 2013.Its balance sheet is significantly exposed to equities and real estate investments that have been affected by market volatility in recent years. However, GGICO was able to secure a refinance agreement with its existing finance providers in 2012, and the debt is expected to be fully repaid by the end of 2018. A.M. Best notes that the largest portion of its loans is to be repaid in the later years, which could place further pressure on GGICO's cash flow in the future. Real estate and equity markets recovered in 2013 and remain bullish during 2014. This has helped improve GGICO's financial position and operating performance. Furthermore, despite the difficulties experienced by GGICO, pressure has not been placed on ASNIC to upstream dividends to its parent company. GGICO appoints three out of the six directors on ASNIC's board, and, therefore, does not enjoy outright control. GGICO's improved financial position and performance, coupled with low dividend pressure and limited influence at board level, has reduced the previously negative pressure on ASNIC.

ASNIC's risk-adjusted capitalisation benefits from a strong capital base of AED 623 million (USD 170 million) relative to low net written premium leverage. The company has been able to grow its capital internally through good operating performance and a high level of profit retention. Risk-adjusted capitalisation is expected to remain strong as the company grows.

ASNIC's has a good franchise within the UAE and has improved its geographical diversification, with business from Jordan representing 21% of gross written premium (GWP) in 2013. Growth of 5% in gross written premium will assist ASNIC in retaining its market position.

ASNIC produced overall earnings in 2013 of AED 51 million (USD 14 million) mainly as a result of improved underwriting performance due to stricter controls on its medical business, increased premium and favorable unrealised gains from its equity portfolio. Given the concentration of the company's investments in domestic real estate and one Saudi equity holding, performance is subject to volatility.

Upward rating movement is likely to emanate from continued improvement in Al-Sagr's operating performance, coupled with strengthening of enterprise risk management. Downward rating pressure could arise from a prolonged deterioration in operating results, or difficulties experienced by GGICO in meeting its debt's obligations.

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.

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.

A.M. Best Europe - Rating Services Limited 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.


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