The financial performance of Misr Insurance Company, Egypt's biggest non-life insurer, is viewed as good, with a net income return on average equity of 12% in FY24 and an average of 13% over the past five years, says Fitch Ratings.
The global credit rating agency says that the performance should be viewed in the context of elevated inflation in the country in recent years. The average monthly inflation in the financial year to end-June 2024 (FY24) rose to 34% from 24% in FY23, 8% in FY22 and 4% in FY21. It is driven by a robust investment component, which amounted to EGP11,564m ($233m) in FY24, while underwriting profitability has been modest, with a Fitch-calculated earned premium-based combined ratio of 103% in FY24 (96% in FY23).
Rating affirmed
Fitch has affirmed Misr Insurance's National Insurer Financial Strength (IFS) Rating at 'AAA(egy)'. The outlook is ‘Stable’.
The rating reflects Misr's leading position as the largest insurance company in the Egyptian insurance market, state ownership, strong capitalisation, good financial performance, and prudent investment strategy by local standards, says Fitch.
Aside from financial performance, other major drivers of Fitch’s rating include:
Leading Domestic Insurer: Misr's rating reflects its 100% state ownership through the Sovereign Fund of Egypt for Investment and Development. Fitch believes the company can rely on government support if needed, as it remains an important domestic non-life insurer with 38% of gross sector premiums and 62% of total assets.
Misr has a leading business franchise and strong competitive advantages within the domestic insurance sector, with a large operating scale and total premiums of EGP22bn based on the average exchange rate in FY24. The company's insurance portfolio is also well-diversified by product and distribution channel.
Strong Capital Position: Fitch views Misr's capitalisation as 'Strong', as measured by Fitch's Prism Global model, which scored it as 'Extremely Strong' at end-FY24 and end-FY23. Overall, Misr's equity grew to EGP72,989m from EGP42,311m in FY24, driven by foreign-currency surplus reserves and net profit. The assessment of Misr's capital position also captures its extremely high regulatory solvency margin, which is 28 times the minimum required level at end-FY24.
Asset Risk Reflects Operating Environment: Fitch views Misr's investment strategy as prudent by local standards, with a diversified portfolio of cash, equity and debt instruments. However, asset and investment risks reflect Egypt's challenging operating environment, characterised by high inflation and low credit quality of financial instruments. The fixed-income portfolio comprises sovereign debt instruments while cash is mainly deposited in local banks with low credit ratings. Equities are primarily investments in listed and unlisted Egyptian companies.
Strong Panel of Reinsurers: Misr's reinsurance utilisation is high, with net to gross premiums of 59% in FY24 and 60% in FY23, while the reinsurance share of paid claims was 27% and 22%, respectively. Fitch views Misr's reinsurance risks as low, considering the high credit quality of its reinsurers, with 91% having a credit rating category of 'A' or above, and the inclusion of catastrophic risk protection in the property reinsurance treaty.