Fitch Ratings has assigned UAE-based Union Insurance Company a first-time Insurer Financial Strength (IFS) Rating of 'BBB' with a 'Positive' outlook.
The ‘Positive’ outlook reflects potential improvement in financial performance following management actions to improve the profitability of Union's underwriting book. The rating reflects the insurer's strong capitalisation, good company profile, and strong reinsurance protection.
Fitch highlights the following factors as Union’s rating drivers:
Good Company Profile: Union is a mid-sized insurance company in the UAE with reported insurance revenue of AED634m ($173m) in 2023 and AED763m in 2022. It is well diversified by line of business, writing a mixture of medical, motor, non-motor, and life insurance. The largest line by premium is the medical business, representing 51% of total net written premium (NWP), largely driven by higher net retentions on this line.
The P&C business is well-diversified by product line, including accident, fire, motor, and engineering business. The life business is credit-life business in the UAE since Union exited from its Omani bancassurance business and the UAE individual life book.
Fitch’s assessment of corporate governance is neutral.
Improving Financial Performance: Fitch expects Union's profitability to improve over the next 18-24 months. In 2023, Union discontinued several unprofitable lines of business including the Oman Credit Life product and Individual Life business in the UAE to improve profitability. Fitch believes these actions will benefit Union's financial performance. Fitch views Union's earnings as adequate, as reflected in a five-year average return on equity of 2%. Overall profitability is supported by solid underwriting results with modest underwriting profits in most years.
Strong Capitalisation: Fitch regards Union's capitalisation and leverage as strong as reflected in an unchanged 'Extremely Strong' Prism Global score in 2023. Fitch’s view of Union's capitalisation is also supported by the absence of financial leverage in its capital structure. Further, Fitch’s assessment of its capitalisation benefits from low gross and net leverage (gross/NWP plus gross/net insurance liabilities divided by equity capital) and an improving local solvency coverage ratio.
Strong Reinsurance Protection: Union makes significant use of reinsurance across all classes of business with lower retention rates than the market average in the UAE for all lines except medical where retention rates are slightly above the industry average. Fitch’s view of Union's reinsurance is also supported by the strong quality of the reinsurance panel, with reinsurers mostly rated above 'A-'.
Conservative Investment Portfolio: Fitch views Union's investment and liquidity risk as low due to a large proportion of bank deposits in its investment portfolio. It has divested its real estate exposure in recent years, leaving only modest investment in equities as the only risky assets, which represented 32% of its total shareholder equity at end-2023. The high proportion of cash and deposits also leads to a very strong liquidity ratio of 200% at end-2023, little changed from end-2022.
Adequate Reserving Practices: Union's reserving adequacy is moderate, scored at 'bbb', aligning with the neutral evaluation for the UAE. The company reserves at best estimate and maintains no buffer above this. The reserves are reviewed by external actuaries based in the UAE.
Mr Ramez Abou Zaid, CEO of Union, commenting on the insurer’s first rating from Fitch, said, “This significant milestone recognises our business resilience and sustainable growth strategy.” He added, “We are committed to further improving our financial performance and insurance offerings to achieve a higher rating in the near future,” he added.
Established in 1998 and listed on the Abu Dhabi Securities Exchange, Union has a paid-up capital of over AED330m. The company provides a wide range of individual and commercial insurance products to clients in the UAE and the wider Middle East.