The geographically diversified operations of Arabia Insurance Company (AIC) across the Middle East partially shields the group from the very high political, economic and financial system risks in Lebanon, said AM Best.
The global credit rating agency said in a report that it expects AIC’s rating fundamentals to remain resilient amid the challenging operating conditions in Lebanon. However, capital fungibility is constrained by the increasing regulatory capital requirements in AIC’s operating jurisdictions.
According to information on AIC’s website, the group has offices in Bahrain, Jordan, Kuwait, Oman, Saudi Arabia, Qatar and the UAE, apart from Lebanon.
Ratings affirmed
AM Best has affirmed AIC’s Financial Strength Rating of ‘B+’ (Good) and the Long-Term Issuer Credit Rating of ‘bbb-’ (Good). The outlook of these credit ratings is ‘Stable’.
The ratings reflect AIC’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Balance sheet strength
AIC’s balance sheet strength is underpinned by its consolidated risk-adjusted capitalisation, which was at the strongest level at year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). The company’s capital consumption is largely driven by investment risk, reflecting the group’s exposure to equity and real estate investments, with certain holdings attracting additional concentration charges in the BCAR model.
Operating performance
AIC has a track record of adequate operating performance, with positive results generated in four of the past five years (2019-2023). The group generated a good return-on-equity ratio of 5.4% in 2023, benefitting from improved investment income in light of the favourable interest rate environment.
Nonetheless, overall earnings have been volatile, having been negatively impacted by the challenging operating conditions prevailing in AIC’s domestic market, particularly in 2020 when AIC reported an ROE of -6.4%. AM Best expects prospective performance to be supported by actions taken by management to rationalise the underwriting portfolio, though AIC’s exposure to weather-related events in the first half of 2024 is expected to weigh on its profitability.
Business profile
AIC’s market profile benefits from a long-standing reputation and diversification of operations across the Middle East. However, the group’s modest footprint across most of its core markets limits its competitive position.
AM Best considers political and regulatory risks to be among AIC’s greatest challenges. The appropriate ERM assessment takes into consideration AM Best’s expectation that AIC will continue to proactively develop its risk management framework and capabilities to adapt to the evolving nature of its operating markets in a controlled way.
AIC was established in 1944 and incorporated in Lebanon in 1948.