A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of Abu Dhabi National Insurance Company (ADNIC) (United Arab Emirates). The outlook for both ratings remains stable.
The ratings reflect ADNIC’s strong risk-adjusted capitalisation, established position in the United Arab Emirates (UAE) insurance market and good financial performance.
ADNIC’s risk-adjusted capitalisation is strong, with its capital base benefiting from a good track record of earnings retention. In 2011, ADNIC’s capital and surplus surpassed AED 2 billion (USD 551 million), sufficient to absorb projected growth of around 15% over the coming years. However, A.M. Best notes that whilst ADNIC’s risk-adjusted capitalisation remains at a good level, it declined in 2011as a result of its decision to be a more pronounced risk carrier with an increased premium retention level, which now stands at approximately 55% of premiums written. ADNIC’s capital position benefits from a good level of credit risk, supported by a reinsurance programme of good credit quality and moderate investment risks, as over 60% of investments are placed in bonds and short-term deposits.
Although there is strong competition in the sector, ADNIC has been able to secure its strong position in the UAE market while sustaining a good level of profitability. In 2011, ADNIC maintained its position as the second-largest insurance company in UAE, in terms of gross written premium, with a market share of over 9%. Gross written premium grew 17% in 2011 to AED 2,066 million (USD 562.5 million). While premiums emanate mainly from Abu Dhabi, A.M. Best notes that the company has been diversifying its source of income to other Emirates in the UAE and also across the Middle East and North Africa region.
ADNIC’s profits increased 11% in 2011 compared to 2010, with a return over capital and surplus of approximately 8%. Overall profitability is underpinned by a good underwriting result, with a very good level of a combined ratio at approximately 84% (83.2% in 2010). However, the combined ratio is above the company’s historical trends and reflects its increased level of unearned premium reserves driven by the introduction of IFRS, forthcoming UAE regulatory requirements and increased business retention. As a result of this, A.M. Best does not expect the combined ratio to significantly improve in the medium term. Furthermore, the reduction in ADNIC’s fair value of assets continues to offset its investment performance, although it has de-risked its portfolio in recent years. In 2011, ADNIC’s invested assets yielded 2.6%. ADNIC’s conservative investment strategy (with a greater focus on cash deposits) provides additional stability to overall earnings and supports the capital base from the current financial markets’ volatility.
Furthermore, in the first half of 2012, premium revenue has grown 16% to AED 1,179 million (USD 325 million), and net underwriting income increased 14% to AED 138 million (USD 38 million). However, net profit in the period decreased to AED 72 million (USD 20 million) from AED 87 million (USD 24 million) compared to the same period last year, driven by the proactive implementation of draft UAE insurance regulation on unearned premium reserves and a provision for doubtful debt.
Going forward, A.M Best does not envisage an upward rating movement in the medium term. Downward pressures could occur if there were a significant deterioration in the company’s financial performance or a substantial reduction in its risk-adjusted capitalisation as measured by Best's Capital Adequacy Ratio (BCAR) model.
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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Assessing Country Risk”; and “Understanding Universal BCAR”. Best’s Credit Rating Methodology can be found atwww.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.
A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.