22 December 2016 Insurance

Arab Insurance Group upgraded by AM Best; praises improved performance

AM Best has upgraded the financial strength rating of Arab Insurance Group (Arig) to A- (Excellent) from B++ (Good). The outlook of the rating has been revised to stable from positive.

According to AM Best, the rating upgrades reflect Arig’s ability to take strategic decisions to eliminate underperforming business segments and optimise its business profile to generate stronger prospective earnings.

The measures taken by management have resulted in improved technical performance, with Arig delivering a 90 percent combined ratio in the first three quarters of 2016, AM Best said. The ratings also consider Arig’s solid balance sheet strength and sound risk management framework.

“Arig maintains a strong brand name in the Middle East and North African reinsurance market, built upon the company’s excellent reputation and its long-standing relationships with cedants. In addition, the company benefits from its exposure to the Lloyd’s market via its investment in Arig Capital (a corporate member at Lloyd’s),” AM Best added.

“Participation in Lloyd’s syndicates that focus on specialty lines represents just over one-third of the company’s gross written premium. The majority of Arig’s reinsurance portfolio is written on a treaty basis and is not heavily exposed to natural catastrophes.

“Going forward, the composition of Arig’s underwriting portfolio is not expected to change materially; however, moderate increases in facultative business are anticipated as the company looks to target higher margin products.

“Additionally, following a shareholder decision, Takaful Re Limited (Takaful Re), a subsidiary of the company, ceased underwriting from the fourth quarter of 2015, and its insurance portfolio has been put into runoff.”

AM Best believes this decision will allow Arig to focus its strategy on its core segments and higher margin business lines, improving underwriting profitability.

According to the rating agency, Arig’s risk-adjusted capitalisation remained strong in 2016, despite capital and surplus decreasing to $244 million at year-end 2015 (2014: $265 million). Arig’s risk-adjusted capitalisation is supported by modest underwriting leverage, conservative asset allocation and prudent reserving.

AM Best expects Arig’s prospective risk-adjusted capitalisation to remain strong and sufficient to absorb the company’s strategic initiatives.

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