AM Best downgrades Saudi’s Medgulf
Rating agency AM Best has downgraded the financial strength and issuer credit rating of The Mediterranean & Gulf Insurance & Reinsurance Company (Medgulf Bahrain) and The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company, a Saudi joint stock company, (Medgulf KSA), as a result of material underwriting losses at the Saudi subsidiary.
Both companies have been downgraded to a financial strength rating of A- (Excellent) from A (Excellent) and issuer credit rating to “a-“ from “a”.
In 2013, the Saudi Arabian Monetary Agency (SAMA) instructed the entire Saudi insurance market to increase its level of conservatism in the calculation of technical reserves, instructing auditors and actuaries to “be more conservative in their assessments of companies’ technical reserves”.
According to AM best, Medgulf KSA reported an increase in net reserves for outstanding claims of SAR466 million ($126 million), producing a net loss of SAR192 million ($51 million) that drove a 16 percent decrease in the shareholders’ equity in 2013. On a consolidated basis, Medgulf Bahrain reported a net loss of SAR243 million ($65 million), reducing shareholders’ equity by 11 percent.
While the increase in technical reserves has affected Medgulf KSA’s risk-adjusted capitalisation, AM Best expects the company’s historically strong operating performance to return and stabilise the group’s capital position.
