AM Best assigns B++ rating to Misr
AM Best has assigned a financial strength rating of B++ to Misr Insurance Company (Egypt), the joint stock insurance company and wholly owned subsidiary of Misr Insurance Holding Company. The outlook assigned to the rating is stable.
The firm said the rating reflects Misr Insurance’s excellent business profile in Egypt, strong risk-adjusted capitalisation and track record of good operating performance.
An offsetting rating factor however, according to the AM Best, is the company’s exposure to the very high level of political risk and high levels of economic and financial system risks associated with operating in Egypt. The ratings also factor in the financial strength and flexibility of the parent company, as well as Misr Insurance’s strategic importance as the non-life and reinsurance operations of the group.
AM Best said Misr Insurance has an excellent business profile as a leading non-life insurer in Egypt. The company’s premium base surpassed EGP4.8 billion ($0.6 billion) in 2015, equating to a domestic non-life market share of approximately 55 percent.
Despite more than 90 percent of the company’s premiums originating from Egypt, its underwriting portfolio is well balanced by class of business, according to AM Best. The rating firm also said the company holds a market leading position in fire, motor, marine, engineering, oil and aviation lines of business.
The company’s risk-adjusted capitalisation remained at a strong level during 2015, according to AM Best.
“Misr Insurance’s capital consumption is driven by underwriting and investment operations, with the company’s investment portfolio, in particular, attracting higher capital charges given its focus toward Egyptian denoted assets,” said the firm.
It also said that the company’s capital and surplus is supported by significant retrograded fluctuation (equalisation) reserves of which full capital credit has been given in Best’s Capital Adequacy Ratio (BCAR) model.
“Prospective capital adequacy is expected to remain supportive of the company’s business strategy over the medium term, supported by a prudent dividend policy and strong retained earnings,” added the rating firm.
Misr Insurance Company has demonstrated a track record of good pre-tax operating results, according to AM Best, which it said is evidenced by profits in each of the last five reported years (2011-2015). An improved pre-tax profit of EGP1.1 billion ($144.1 million) was reported for the financial year to June 2015, compared with EGP0.9 billion ($128.6 million) in 2014.
Prior to 2013, technical operations had generated losses, mainly due to weak performance from the company’s mandatory motor third-party liability portfolio, according to the rating firm. However, it said changes in the limit of liability attached to this line of business, combined with increased tariffs, has enabled improved performance.
“In addition, the company has strengthened its risk selection and underwriting discipline on other lines of business,” it said.
“As a consequence of these changes, the company has reported technical profits in each of the last two years. However, technical earnings remain marginal and profitability continues to be driven by non-technical income from the company’s large invested asset base.”
Political and financial instability, as well as social unrest in Egypt, has the potential to disrupt the economic conditions in Egypt, said the firm. It said despite Misr Insurance’s track record of successfully navigating these challenging market conditions, it continues to monitor the impact these external factors may have on the company’s operations.
