Press Release - JUNE 10, 2011
A.M. Best Upgrades Issuer Credit Rating of Arab Orient Insurance Company
LONDON, JUNE 10, 2011
A.M. Best Europe – Rating Services Limited has upgraded the issuer credit rating to "bbb+" from "bbb" and affirmed the financial strength rating of B++ (Good) of Arab Orient Insurance Company (Arab Orient) (Jordan). The outlook for both ratings is stable.
The upgrade reflects the implicit support of the parent company, Gulf Insurance Company K.S.C (GIC), and Arab Orient's importance within the group. Moreover, Arab Orient continues to produce robust operating performance and maintenance of its very good position in the Jordanian market. An offsetting factor is its declining risk-adjusted capital position and marginal, albeit improving, level of enterprise risk management.
Arab Orient continues to demonstrate a very good track record of underwriting profitability, achieving faster growth than the market, whilst maintaining a sound underwriting practice. Underwriting profitability reached JOD 4.6 million (USD 6.5 million) in 2010, up from JOD 3.7 million (USD 5.2 million) in 2009, with a strong combined ratio below 80% (excluding unallocated expenses).
Additionally, Arab Orient's performance is supported by a conservative investment strategy achieving modest returns of approximately 5%.
A.M. Best believes that Arab Orient has a very good business profile in Jordan, further consolidating its leading position with a 13% share of gross premiums written in 2010. The company's portfolio reflects local market characteristics, with 75% of gross premiums written dominated by medical health care and motor risks.
There are concerns regarding Arab Orient's level of risk-adjusted capitalisation, which has been declining in recent years stemming from significant growth in underwriting risks, insufficiently supported by increases in capital and surplus. A.M. Best views Arab Orient's capital position as adequate for the current rating; however, growth in excess of projected plans may place the company's capital position under strain, particularly on a stressed basis.
In 2010, GIC increased its shareholding to 88.6%, reflecting a restructuring within the group bringing insurance entities under GIC. A.M. Best views this as a positive development, with Arab Orient benefitting from group support and expertise. This had been demonstrated through the creation of a group reinsurance programme and the ongoing development of the group enterprise risk management framework.
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.