Bahrain-based Saudi Arabian Insurance Company (Damana) showed a steady improvement in its underwriting results in 2023 and the first half of 2024, driven largely by a reduction in its expense ratio, notes AM Best.
This contrasts with poor performance in 2021 and 2022, AM Best adds.
In the last five years (2019-2023), Damana reported combined ratios in excess of 120%, peaking in 2021 at 148.2% (as calculated by AM Best). The poor underwriting results are reflective of considerable expense strain arising from its operating model and substantially reduced business scale.
Damana reported insurance service revenue of BHD19.4m ($51.5m) in 2023, an increase of 21.0% compared with the previous year. This follows a contraction in premiums in 2021, which was in part attributable to regulatory restrictions imposed by the Central Bank of Bahrain on the company’s operations in Bahrain in the second half of the year. This restriction was lifted in December 2021, resulting in a return to growth in 2022.
Investment returns were historically driven by Damana’s holdings in a group treasury account, which generated high guaranteed returns. The group treasury account was fully liquidated in 2023, and therefore prospective investment returns are likely to be impacted.
Looking ahead
AM Best expects further revenue growth in 2024; however, it acknowledges the challenging and competitive conditions in Damana’s core markets of Bahrain, the UAE, Oman, and Kuwait.
Ratings
AM Best has revised the outlooks for Damana to ‘Stable’ from ‘Negative’ and affirmed the Financial Strength Rating of ‘B+’ (Good) and the Long-Term Issuer Credit Rating of ‘bbb-’ (Good).
The credit ratings reflect Damana’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile, and marginal enterprise risk management (ERM). The ratings also factor in the neutral impact from Damana’s ultimate parent, Mawarid Holding Company.
The revision of the outlooks to ‘Stable’ from ‘Negative’ follows corrective actions initiated by management, which AM Best expects to lead to more stable operating performance over the short-to-medium term.
Balance sheet strength assessment
Damana’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, which was at the very strong level at year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects Damana's BCAR scores to recover substantially in 2024.
Damana has a robust liquidity position, with the ratio of cash and deposits to net technical provisions equal to 170% at year-end 2023. Whilst the company’s previous dependence on reinsurers has partially declined, it remains reliant on reinsurance for high value risks, which is a common trait in the region. Credit risk is minimised by a reinsurance panel of sound credit quality.