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LONDON, 12 September 2011—A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of A- (Excellent) and issuer credit rating of “a-” to Emirates Insurance Company P.S.C. (EIC) (United Arab Emirates). The outlook assigned to both ratings is stable.
The ratings of EIC reflect its strong level of risk-adjusted capitalisation, very good track record of technical profitability and established position in the United Arab Emirates market. An offsetting rating factor is the company’s weak investment strategy, with significant concentration in equities. In A.M. Best’s opinion, EIC’s risk-adjusted capitalisation is strong benefitting from capital and surplus of AED 789 million (USD 215 million) in 2010, relative to a low level of underwriting risks. Additionally, EIC’s capital position is supported by sound reinsurance protection. However, capital requirements are largely driven by EIC’s investment activities, with a high concentration in equities, which is a concern. A.M. Best’s viewpoint is, while EIC’s level of risk-adjusted capitalisation is sufficiently strong to absorb the concentration and fluctuation in its investment activity, it will give rise to volatility in its capital position and earnings, and thereby require prudent capital management. A.M. Best acknowledges the efforts made by the company in recent years to de-risk its investment portfolio, although exposure to equities and private investment funds remain high, above 50% of invested assets. Prospective levels of risk-adjusted capitalisation are likely to be driven by improvements in its investment profile and dividend policy.
EIC has demonstrated a very good track record of technical profitability in recent years, with technical profits rising to AED 55 million (USD 15 million) in 2010. This has been achieved through strict underwriting practices and careful selection to attract quality business in a competitive market environment. EIC produced a loss ratio below 60% in 2010 with robust performance across most business segments. A very good combined ratio of approximately 75% has been maintained, with expenses benefitting from significant inward reinsurance commissions.
In A.M. Best’s opinion, EIC has become a prominent player in the United Arab Emirates’ general insurance market with written premiums of approximately AED 630 million (USD 171 million) in 2010, establishing itself as a top five player. However, there is some pressure on EIC’s market position, as it may weaken over the coming years, with increased competition and pressure on pricing. As such EIC is expected to concentrate on underwriting profitability over premium volume. EIC has a diversified portfolio in line with local market characteristics, with a low retention level of 40%, mainly geared towards motor.
A.M. Best views EIC’s risk management framework as moderate, with good controls in place, particularly for underwriting and operational risks. However, there are concerns regarding investment risk management, for which EIC is aiming to address the deficiencies over the next three years.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology — Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; and “Assessing Country Risk”. Methodologies 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. Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.