Ratings Recap: Int’l. General, SALAMA

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating (ICR) of “a-” of Bermuda-based International General Insurance Company Limited (IGI). Best also affirmed the ICR of “bbb-” of International General Insurance Holdings Limited (IGIH) of Dubai. The outlook for all ratings is stable. “The ratings reflect IGI’s resilient risk-adjusted capitalisation and improving business profile,” said Best. “Offsetting factors are the company’s poor underwriting performance in 2008 and the impact of the economic downturn that may restrict premium volumes in spite of a hardening of rates.” Best explained that IGI’s risk-adjusted capitalisation declined significantly from the large underwriting losses in 2008 on its marine and energy portfolios. However, best also indicated that it “believes that IGI’s prospective risk-adjusted capitalisation is likely to remain supportive of its compounded annual average gross written premium growth of around 14 percent over the next three years. IGI’s absolute level of economic capital of $166 million expected in 2009 is viewed as reasonable and is expected to be further improved by higher anticipated earnings in the medium term.” Best added that in its opinion, “IGI’s operating performance has been severely impacted by the unexpected Gulf of Mexico windstorm and major marine losses in the range of $20 million in 2008.” In addition Best will “be monitoring IGI’s underwriting profitability given the new reinsurance arrangements and withdrawal from loss-making areas of the portfolio.” It expects a return to combined ratio of around 96 percent amidst a backdrop of downturns in the underwriting and economic cycles, softened by an increase in rates. IGI’s prospective return on equity also is likely to improve to approximately 10 percent -11 percent from lesser volatility in capital markets over 2009 (-2.9 percent in 2008).”

A.M. Best Co. has affirmed the financial strength rating of ‘A-‘ (Excellent) and issuer credit rating of “a-” of SALAMA Islamic Arab Insurance Company (P.S.C.) of the United Arab Emirates. The outlook for both ratings is stable. Best said the ratings of SALAMA “reflect its solid business profile and strong, albeit lower, risk-adjusted capitalisation. An offsetting factor is the underperformance of its investment portfolio in 2008, which led to overall losses. SALAMA’s business portfolio is well spread geographically, with the company targeting rapid expansion of its business in Saudi Arabia, where it owns 30 percent of a start-up operation. The business is still focused on property (38 percent) and motor (20 percent), although growth of life business in the Middle and Far East remains one of the main objectives.” Best added that SALAMA’s risk-adjusted capitalisation in 2008 was “likely to remain at similar levels as 2007, it declined further due to the company’s investment losses and the already anticipated high business growth. Nevertheless, the company’s risk-based capital position remains strong and supportive of the current rating level. The reduction in risk-based capitalisation is likely to continue given the premiums growth forecast of 15 percent-30 percent annually until 2011. Deviations from the current business plans are likely to strain SALAMA’s capital position. SALAMA was impacted by the declining stock markets in the fourth quarter of 2008, which led to investment losses that more than offset the slightly improved underwriting profitability in 2008. SALAMA’s combined ratio stood at 93.7 percent; however, investment losses impacting directly the profit and loss account amounted to AED 22.8 million ($6.2 million) and resulted in an overall loss of AED 8.2 million ($2.2 million) against a profit of AED 155 million ($42 million) in 2007. With stock markets showing stabilising or improving signs and the company’s reduction in equity exposure, A.M. Best expects SALAMA’s investment returns to improve, although to much lower levels than seen in the past.”