Solidarity Bahrain, a subsidiary of Solidarity Group Holding, has announced that it has acquired a stake of 28.985% in Alliance Insurance, an insurer based in Dubai and listed on the Dubai Financial Market.
The acquisition was made in two stages and announced in separate stock exchange statements by Solidarity Bahrain. Details are:
-
|
Effective date
|
Number of shares
|
Stake
|
Total purchase
price AED
|
Price per share AED
|
|
11 Nov
|
250,000
|
25.000%
|
112,500,000
|
450
|
|
14 Nov
|
39,850
|
3.985%
|
17,932,500
|
450
|
|
Total
|
289,850
|
28.985%
|
130,432,500
|
|
The transactions, which received approvals from the Central Bank of the UAE and the Central Bank of Bahrain, were funded through a combination of debt (murabaha financing) and equity. “This strategic move enables Solidarity Bahrain to strengthen its presence in the UAE by leveraging Alliance’s established market position”, said Solidarity Bahrain in the bourse statements.
Following the acquisitions, Alliance is expected to be classified as an associate of Solidarity Bahrain.
Alliance’s issued and paidup share capital consists of 1m ordinary shares with a nominal value of AED100 each. The insurer was established in 1975 in the UAE and provides both life and general insurance.
AM Best’s commentary on Alliance
Meanwhile, AM Best has affirmed the Financial Strength Rating of ‘A-’ (Excellent) and the Long-Term Issuer Credit Rating of ‘a-’ (Excellent) of Alliance. The outlooks of these credit 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 low underwriting leverage and a conservative investment portfolio allocation.
An offsetting factor in the balance sheet strength assessment is Alliance’s dependence on reinsurance for its non-life insurance risks; however, the associated credit risk is mitigated partially by the use of a diversified reinsurance panel of sound financial strength.
Operating performance
Alliance has a record of strong operating performance evidenced by a five-year (2019-2023) weighted average return on equity (ROE) of 9.3%. The company’s performance continues to be principally driven by its life underwriting profits, which remained robust in 2023.
Alliance’s non-life underwriting performance has reduced in recent years following strong topline growth in its medical and motor businesses during 2022. Both segments have been under intense pricing pressure due to the competitive environment in the UAE. This resulted in a weakening in the company’s technical non-life results, leading to net/net combined ratios, as calculated by AM Best, of 131.2% and 134.5% in 2023 and 2022, respectively.
Management has taken action to remediate the poor performance on its non-life portfolio, and the effects of the measures taken are expected to become visible during 2025. Alliance’s performance is further supported by robust investment income, with the net investment return ranging between 4.0% and 6.3% between 2019 and 2023.
Alliance’s business profile as a mid-tier domestic market participant is unlikely to change over the near term as it has limited product diversification and operates in an increasingly competitive UAE insurance market, where finding profitable growth opportunities is a challenge.