A.M. Best Affirms Ratings of Orient Insurance Company (PJSC)
LONDON, 25 April 2013—A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of A (Excellent) and the issuer credit rating of “a” of Orient Insurance Company (PJSC) (Orient) (United Arab Emirates). The outlook for both ratings is stable.
The ratings reflect Orient’s supportive level of risk-adjusted capitalisation, solid business profile within the UAE and robust operating performance. An offsetting factor is Orient’s concentrated investment profile.
Orient’s level of risk-adjusted capitalisation remains supportive of the current ratings despite a substantial reduction in 2012, stemming from higher investment risk following the purchase of a single equity holding. Supporting Orient’s risk-adjusted capital position is its high level of internal capital generation, low retention of insurance risks and a reinsurance programme of good credit quality.
Orient remains the third-largest insurance company in the UAE by gross written premium with approximately 10% market share. Premiums grew 11% in 2012 to AED 1.4 billion (USD 380 million), driven by Orient’s strong multichannel distribution network and its position within the Al Futtaim group. Orient continues its strategy of diversifying its premium generation following the regional expansion of its parent’s franchise. However, at present, the majority of its business is generated within the UAE.
For the third consecutive year, Orient has generated the highest net profit in the UAE insurance market with earnings continuing its upward trend despite increased market competition. Profits increased 5% in 2012 to AED 213 million (USD 58 million), and the return over adjusted capital and surplus remained at approximately 20%. Orient’s technical results remain strong, achieving a combined ratio of approximately 60% in the last four years of operation.
A.M. Best has concerns regarding a shift in Orient’s investment strategy, with material exposure to a single equity investment, which consumes one-third of the company’s asset allocation. This change in strategy may create a potential volatility in Orient’s capital base and investment return, thereby creating the need for an enhanced enterprise risk management framework to ensure investment risks are controlled and mitigated effectively. A.M. Best notes that further improvement in risk management is expected over the coming year, with the development of an internal capital model.
Going forward, a material reduction in risk-adjusted capitalisation, a significant impairment emanating from its equity investment, or insufficient improvements in its enterprise risk management could add negative pressure to the ratings. Upward movements are unlikely over the medium term.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology 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.
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