AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Alliance Insurance (PSC) (Alliance) (United Arab Emirates). The outlooks of these Credit Ratings (ratings) are stable.
The ratings reflect Alliance’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
Alliance’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level. AM Best expects the company to maintain a significant capital buffer in excess of the strongest BCAR threshold, supported by robust retention of earnings, low underwriting leverage and a conservative investment portfolio. An offsetting factor in the balance sheet strength assessment is Alliance’s dependence on reinsurance for non-life insurance risks; however, the associated credit risk is mitigated partially by the use of a diversified reinsurance panel of sound financial strength.
Alliance has a track record of strong operating performance as evidenced by a five-year (2018-2022) weighted average return on equity (ROE) of 8.3%. The company’s performance continues to be principally driven by its life underwriting profits, which remained robust in 2022. The company has reported strong non-life technical profits, as illustrated by a five-year weighted average combined ratio of 92.4%. Nevertheless, the profitability of Alliance’s non-life business deteriorated significantly at year-end 2022, as evidenced by a combined ratio of 129.7% (as calculated by AM Best), considering the heightened competitive environment in the medical and motor businesses in the United Arab Emirates (UAE). Management has taken action to remediate the poor performance on its non-life portfolio. The company’s performance is further supported by robust investment income, illustrated by a five-year average net investment return (including gains) of 4.7%. Prospectively, AM Best expects that Alliance’s life segment will continue to be the main driver of its underwriting profitability; however, AM Best also anticipates an improvement in the company’s non-life technical performance.
Alliance’s business profile as a mid-tier domestic market participant is unlikely to change over the near term as the company has limited product diversification and operates in an increasingly competitive UAE insurance market, where finding profitable growth opportunities is a challenge.
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