Jordan French Insurance Company (JOFICO) has a financial performance that Fitch Ratings views as a rating weakness although it is improving since 2023. Fitch, in a report released yesterday, says that it expects JOFICO to report positive profitability in 2024.
Commenting on the insurer’s past results, Fitch says that JOFICO's net income returns on equity increased to 1.4% in 2023 from -8.2% in 2022, but it still recorded negative pre-tax income. Underwriting profitability improved, as demonstrated by a combined ratio of 98% (104% in 2022) which helped JOFICO achieve positive net income after taxes. Higher investment income and premium growth were the main drivers of increased profitability.
Ratings affirmed
Fitch Ratings has affirmed JOFICO’s Insurer Financial Strength (IFS) Rating at 'BB-'. The outlook is ’Stable’.
The rating reflects JOFICO's market position as a medium-sized insurer in Jordan, its capital position that aligns with the rating, its weak albeit improving financial performance, and its high investment risk.
Aside from financial performance, Fitch says that key rating drivers for JOFICO are:
Medium-Sized Insurer: JOFICO is a medium-sized insurer in Jordan, with a moderately competitive position. The company is a composite domestic insurer that maintains a prominent focus on motor and health lines, which accounted for 43% and 48% of its insurance contracts revenue, respectively, in 2023.
Fitch views JOFICO's operating scale as limited, as reflected in gross written premiums (GWP) of JOD38m in 2023 or $53m based on the average official exchange rate. JOFICO has an adequate franchise in the domestic insurance sector and remains a medium-sized domestic company with a market share of 5.2% in 2023 (2022: 4.5%). Fitch assesses JOFICO's risk appetite as being in line with the sector average.
Capital Commensurate with Rating: JOFICO's capitalisation, as measured by Fitch's Prism Capital Model, weakened to 'Somewhat Weak' at-end 2023 from 'Adequate' at end-2022 following premium growth of 17%. Its regulatory solvency margin ratio, based on Solvency I, recovered above the minimum of 150% at end-2023. Fitch expects JOFICO to meet the enhanced regulatory requirements that are expected to be introduced in 2025, whereby the minimum amount of paid-up capital for composite insurers will rise to JOD16m from the current JOD8 million.
High Investment Risk: Fitch views JOFICO's investment risk as high, albeit commensurate with the rating. The insurer's investment portfolio is dominated by fixed-income instruments in the form of bank deposits, which are mainly placed with a large number of local state-owned and large private banks. Fitch views the asset portfolio as fairly well diversified by issuer and reasonably liquid.
Developing Reserving Practices: Fitch views JOFICO's actuarial reserving practices as developing and its reserve adequacy as consistent with the rating. Reserves are set using standard actuarial best estimate methods and reviewed by an external actuary.
Good Reinsurance and Risk Management: JOFICO's reinsurance protection is conservative and comprehensive. The company uses quota-share reinsurance for engineering and fire, marine and general accident risks, and excess of loss reinsurance for motor insurance. Fitch believes JOFICO's enterprise risk management practices are developing to align with higher nationwide regulatory standards, as shown by enhanced corporate governance practices and by the implementation of a risk management strategy within the company.