AM Best Affirms Credit Ratings of Arabia Insurance Company - Jordan

AM Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb+” (Fair) of Arabia Insurance Company – Jordan (AICJ) (Jordan). The outlook of the FSR is stable while the outlook of the Long-Term ICR is negative.

These Credit Ratings (ratings) reflect AICJ’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The ratings also reflect, in the form of lift, AICJ’s strategic importance to its ultimate parent, Arabia Insurance Company s.a.l. (AIC).

The negative outlook on the Long-Term ICR reflects the negative pressures on the credit fundamentals of AIC.

AICJ’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio, which was at the very strong level at year-end 2021. An offsetting rating factor is AICJ’s high reinsurance dependence, driven by high cessions on its property risks. Whilst the majority of the company’s reinsurers are of strong credit quality, AICJ has significant credit exposure to non-rated Jordanian companies. The balance sheet strength assessment also considers AICJ’s high level of debtors as a proportion of shareholders’ equity (75% at year-end 2021), and significant investment concentration in Jordan, partly due to regulatory restrictions.

AICJ has a track-record of generating positive operating results, illustrated by a five-year (2017-2021) weighted average return on equity of 2.5%, supported by positive and stable investment results and underwriting performance historically at around break-even. The company’s combined ratio deteriorated in 2021 to 112.3%, from 94.8% in 2020, chiefly driven by material reserve strengthening on the compulsory motor third-party liability book in response to social inflation observed in Jordan. This led to an overall loss after tax of JOD 0.4 million for the year. AM Best expects prospective operating performance to be adequate over the economic cycle, supported by actions taken by management to improve underwriting performance and resilient investment results.

AICJ’s limited business profile assessment reflects its small market share in the overcrowded and fragmented Jordanian market. The company’s underwriting portfolio is dominated by motor business on a net written premium basis, as other lines of business are heavily reinsured.

While AICJ’s ERM framework is mostly evolving, it is considered to be commensurate with the size and complexity of its operations. AICJ’s ERM assessment factors in continued developments that are expected to arise, notably from leveraging on AIC’s risk management capabilities.

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 Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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