AM Best Affirms Credit Ratings of Al Dhafra Insurance Company P.S.C.

AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” (Good) of Al Dhafra Insurance Company P.S.C. (ADIC) (United Arab Emirates). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect ADIC’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.

ADIC’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), a history of good internal capital generation and strong liquidity. During 2021, the company rebalanced its investment portfolio, increasing its exposure to higher risk equity investments and consequently the potential for capital volatility. Additional offsetting factors in the balance sheet strength assessment are the company’s geographic concentration of investments in the UAE and its high reinsurance dependence, with a premium retention ratio below 30% over the past five years (2017-2021). The credit risk associated with this dependence is partially mitigated by the use of a well-diversified reinsurance panel of sound financial strength.

ADIC has a track record of strong operating profitability, as evidenced by a five-year (2017-2021) weighted average return on equity of 14.7%. Over the past five years, operating performance has been driven by underwriting profitability. Despite a level of volatility during this period, ADIC has recorded a five-year (2017-2021) weighted average combined ratio of 65.8% (as calculated by AM Best). After several years of excellent performance, underwriting returns decreased in 2021, which, while remaining strong, caused the combined ratio to increase to 84.7% (2020: 56.7%).

ADIC’s business profile is assessed as limited, reflective of its market position as a mid-tier insurer in the UAE. ADIC wrote AED 314.5 million of premium in 2021 on a gross basis (2020: AED 289.8 million). Geographically, the company’s underwriting portfolio is concentrated in the competitive UAE market. While ADIC benefits from a diversified underwriting profile by line of business on a gross basis, the company’s retained portfolio has greater concentration to the motor and medical lines of business.

This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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