A.M. Best Affirms Ratings of Arab Insurance Group (B.S.C)

A.M. Best has affirmed financial strength rating (FSR) of B++ (Good) and the issuer credit rating of “bbb+” of Arab Insurance Group (B.S.C.) (Arig) (Bahrain). The outlook for both ratings remains positive.

The ratings reflect Arig’s improving track record of operating performance during challenging market conditions, solid risk-adjusted capitalisation and diverse regional business profile. An offsetting rating factor is the weak technical performance of Arig’s subsidiary Takaful Re Limited (Takaful Re) (UAE).

ARIG’s overall earnings have improved in recent years following stronger underwriting performance and stable investment income. The company has made a significant effort to restructure its portfolio, shedding unprofitable accounts and targeting segments where profit margins are higher. As a result, ARIG’s five-year average combined ratio has declined to approximately 100%, with prospective performance expected to achieve combined ratios below 100%. ARIG’s underwriting performance is partially hampered by the consolidation of Takaful Re’s policyholders’ fund from 2013. Although Takaful Re’s results have historically been weak, management is proactively considering a number of options to improve the performance within the subsidiary. Arig’s risk-adjusted capitalisation remained strong in 2014, with capital and surplus growing to USD 249 million at year-end 2013 (2012: USD 235 million). Arig’s strong risk-adjusted capitalisation is supported by modest underwriting leverage, moderate asset allocation and conservative reserving.

While maintaining a strong business profile in the Middle East and North Africa (MENA) region, Arig has added diversification to its underwriting book via the London insurance market. Participation in Lloyd’s syndicates that focus on specialty lines represents just over one quarter 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.

Over the coming years, sustained underwriting profitability and robust risk-adjusted capitalisation is likely to result in a rating upgrade. Failure to maintain underwriting profitability and/or robust risk-adjusted capitalization is likely to result in stabilization of the rating outlook and could add further negative pressure to the ratings.

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.

Key insurance criteria reports utilised:

• Understanding Universal BCAR
• Evaluating Country Risk
• Risk Management and the Rating Process for Insurance Companies
• Catastrophe Analysis in A.M. Best Ratings
• Rating Members of Insurance Groups
• Takaful (Shari’a compliant) Insurance Companies

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.

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

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