Moody's affirms the A3 IFSR for Al-Ain Ahlia Insurance Co.

26/05/2015 17:11 AST

Moody's Investors Service has today affirmed the A3 insurance financial strength rating (IFSR) of Al-Ain Ahlia Insurance Co. (Al-Ain Ahlia), based in Abu Dhabi in the United Arab Emirates (UAE). The outlook is stable.

The rating affirmation reflects Al-Ain Ahlia's (i) strong market position in the UAE insurance market; (ii) good technical experience in the oil and gas business lines combined with a good cooperation with major international reinsurers; (iii) excellent capital position with gross underwriting leverage at 0.8x in 2014; and iv) strong underwriting profitability with a 5 year average combined ratio of 88 per cent in 2014.

These strengths are tempered by (i) the high risk investment strategy, with large investment in equities and real estate; and (ii) the focus on Abu Dhabi (Aa2, Stable) which creates geographic concentration risk and reliance on the Abu Dhabi economic performance.

Al-Ain Ahlia was created in 1974 and is one of the principal insurance companies operating in the Emirate of Abu Dhabi. The insurer offers a wide range of non-life insurance lines to both companies and individuals in Abu Dhabi, with a particular focus on providing property, engineering, oil & gas and motor insurance to the major state-sponsored and private commercial enterprises. Al-Ain Ahlia recorded gross written premium of AED 600 million ($163 million) in 2014 and had total assets of AED1, 885 million (US$513 million) as at 31st December 2014. Based on 2014 gross premium results, the company ranks as a top five insurer in UAE.

Al-Ain Ahlia was established by the government of Abu Dhabi, and remains partially state-owned with a 19.7 per cent stake held by the Abu Dhabi Investment Council. As a consequence, Moody's assesses Al-Ain Ahlia as a Government-Related Issuer (GRI).

"The main standalone strength of Al-Ain Ahlia is its strong business position within the State of Abu Dhabi," says Mohammed Londe, an Analyst in Moody's EMEA Insurance and local market analyst for Al-Ain Ahlia. "The insurer enjoys good technical expertise, which provides a clear advantage versus competitors when seeking business from major projects in Abu Dhabi."

The company also enjoys a robust capital position with shareholders equity representing 62 per cent of the total assets as at year-end 2014. Furthermore, Al-Ain Ahlia has shown consistent profitability with a five year average combined ratio of 88 per cent contributing to the five year average return on capital of over five per cent in 2014 and resulting in a sharpe ratio of return on capital (which measures the consistency of returns on a five year average basis) of 712 per cent (all on a Moody's basis).

However, these strengths are partially offset by a high-risk investment strategy compared to western insurers with a high risks assets as a per cent of shareholders equity of 66 per cent at year-end 2014. The company has large investments in local equity and property markets, which have shown considerable volatility. Additionally there is some volatility in the volume of the individual business lines due to the company's geographic concentration, with continued top line pressures resulting from the high levels of price competition in the UAE market.

Moody's says that upward rating pressure for Al-Ain Ahlia may evolve over time from (i) significant reduction in investment risk, with a greater focus on high quality bond investments and deposits; (ii) improvement in profitability, with return on capital of over 10 per cent and/or combined ratios below 85 per cent consistently; and/or (iii) wider geographic diversity, with a commanding position in the wider Emirates or elsewhere in the Gulf Cooperation Council countries.

CPI Financial