Fitch Ratings has revised the outlook on Oman Reinsurance Company's Insurer Financial Strength (IFS) Rating to 'Positive' from 'Stable' and affirmed the IFS rating at 'BBB-'.
The revision of the outlook to ‘Positive’ reflects improvements in the company's investment and asset risk, which is strongly correlated with sovereign credit quality, and the consolidation of its capitalisation and financial performance. The outlook on Oman's sovereign rating is ‘Positive’.
The affirmation reflects Oman Re's good franchise in its core markets, small operating scale, good capitalisation and earnings, and conservative approach to reserving and reinsurance.
Key rating drivers for Oman Re include:
Established Franchise, Small Scale: Oman Re has established its business franchise over the past five years. The reinsurer's core markets are the Middle East, Turkiye, central and eastern Europe and Commonwealth of Independent States, Asia and Africa. Its largest market is Turkiye, which contributed 14% of gross written premiums in 2024. However, Oman Re has a very small operating scale, as underscored by its gross reinsurance revenue of OMR50m in 2024 (around $130m based on the average exchange rate).
Good Capitalisation, No Leverage: Fitch views Oman Re's capitalisation as supportive of the rating. The reinsurer's Prism Global model score based on end-2024 data was 'Strong', in line with end-2023. Oman Re's available capital is high quality and mostly made up of paid-up share capital. The reinsurer has no debt and does not plan to issue. Oman Re's local regulatory solvency margin was also sound at 167% at end-2024 (2023: 179%).
Improved Financial Performance: Fitch views Oman Re's financial performance as good, as reflected in a net income return on equity of 8.9% in 2024 (2023: 8.4%). Its net profit after tax rose to OMR3.0m from OMR2.6m, supported by strong underwriting and investment results. Oman Re's underwriting performance has improved in the last five years, as demonstrated by a steadily declining combined ratio. Based on IFRS 17 statements, the Fitch-calculated combined ratio on a net to gross approach was 94% (2023: 92%), with a small rise caused by UAE flood losses in 2024, a level Fitch considers strong. Return on equity is also rising, from 6% in 2020 to 8.9% in 2024.
Asset Risk Tied to Sovereign: Fitch regards Oman Re's investment and asset risk as strongly tied to the credit quality of the Omani sovereign. Oman Re's investments are either in the form of government bonds or term deposits placed with Omani banks and accounted for 57% of its total invested assets at end-2024 (2023: 60%, 2022: 68%). Oman Re has been gradually reducing its exposure to Omani investments but its ability to meaningfully rebalance its investment portfolio is limited by local regulation, which requires the company to keep at least 50% of its investment in Oman.
Prudent Investment Strategy: Oman Re's investment strategy is prudent and its investment portfolio is well diversified by type of instrument. Oman Re's conservative asset allocation is reflected in a risky assets-to-capital ratio of 71% in 2024. Oman Re has expanded its operations via its Qatar Financial Centre branch and mainly invests new money in foreign currency-denominated assets of high credit quality.
Prudent Reserving: Fitch views Oman Re's reserving practices as prudent and its reserve adequacy as strong. The company has strong actuarial expertise and conservative underwriting policies. Most of Oman Re's business is short-tail and reserves have been running off favourably.
Strong Reinsurance Practices: Fitch views Oman Re's risk management practices as sophisticated. The reinsurance programme is extensive and covers key business lines in which the company operates. The credit quality of Oman Re's reinsurance panel is strong as it mostly includes strong reinsurers rated in the 'A' category or above. Fitch views Oman Re's exposure to natural catastrophes as low. The group's net aggregate exceedance probability-based loss was modelled at OMR3.5m in 2024 at a one-in-200-year return period, around 10% of total capital.