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FOR IMMEDIATE RELEASE
LONDON - AUGUST 27, 2015 11:30 AM (EDT)
A.M. Best has placed under review with negative implications the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Abu Dhabi National Insurance Company P.S.C. (ADNIC) (United Arab Emirates).
The rating action follows a further decline in ADNIC's risk-adjusted capitalisation and operating performance, emanating from significant reserve strengthening during the first half of 2015 and poor underwriting performance on core commercial business lines. The under review status reflects the company's proactive approach to improve underwriting and to restore its capital to a level supportive of the ratings by year-end 2015.
Following a change in senior management at the end of 2014, ADNIC carried out a comprehensive review of reserving practices and claims handling within the company. This resulted in ADNIC undertaking further significant reserve strengthening, during the first half of 2015, in addition to that encountered in 2014. As a result of the action undertaken by management to correct legacy issues, there has been a material deterioration in risk-adjusted capitalisation, liquidity and technical performance over the past year.
Shareholders' equity as of June 2015 declined by 17% to AED 1,363 million (USD 371 million); this is subsequent to the decline of 22% experienced in 2014. Moreover, whilst ADNIC's capitalisation is currently under strain, the company's liquidity position has also weakened. The company expects to restore its capital position to a level supportive of the current ratings, by year-end 2015; this in turn should improve the overall liquidity of the company. At present, the company has not provided any indication on the amount of capital it is likely to inject.
Furthermore, concerns remain with regards to the company's technical performance, with 2015 expected to result in an underwriting loss for the year. Reflecting the weak earnings over the past year, ADNIC's five-year average combined ratio is likely to rise above 100%. The company has already taken corrective measures to improve the motor and medical portfolios by enforcing stricter underwriting guidelines and controls, in addition to shedding loss-making accounts. While it is expected that ADNIC will return to technical profitability in 2016, the company will be challenged to produce robust results given the fierce competition in the UAE market.
A.M. Best expects to resolve the under review status by year-end 2015 when greater clarity is ascertained on the company's financial health, prospective earnings and measures taken to strengthen enterprise risk management.
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 press release relates to rating(s) 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 visit A.M. Best's Ratings & Criteria Center.
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