A.M. Best Europe – Rating Services Limited has downgraded the
issuer credit rating (ICR) to “bbb” from “bbb+” and affirmed the
financial strength rating (FSR) of B++ (Good) of Arab Misr Insurance
Group S.A.E. (AMIG) (Egypt). The outlook for both ratings has been
revised to negative from stable.
The downgrading of the ICR of AMIG reflects A.M. Best’s view of the
increased financial and political risks associated with Egypt as
indicated by the country’s reclassification from CRT-4 to CRT-5, and
AMIG’s increased exposure to Egyptian sovereign debt, albeit largely
Despite the difficult operating environment, AMIG’s financial position
remains sound given its strong risk-adjusted capitalisation as measured
by Best’s Capital Adequacy Ratio (BCAR) and its continuing sound
technical performance. Furthermore, the company has continued to improve
its domestic franchise, now ranking as Egypt’s third-largest insurer by
premiums. These factors, combined with the results of A.M. Best’s stress
tests for a sovereign default, support A.M. Best’s decision to maintain
secure ratings on AMIG. Furthermore, the ratings benefit from the
implied support of AMIG’s parent, Gulf Insurance Company K.S.C.
The outlook for both the ICR and FSR has been revised to reflect the
ongoing financial and political uncertainty in Egypt.
In A.M. Best’s opinion, AMIG’s risk-adjusted capital position has been
improving in recent years through the full retention of profits, which
has outpaced capital consumption on a risk-adjusted basis. However,
AMIG’s investment portfolio is a source of concern, particularly given
that the increased sovereign debt exposure followed A.M. Best’s
downgrading of the risk tier of Egypt and has coincided with the
negative pressure on the creditworthiness of Egypt’s sovereign debt.
A.M. Best’s stress tests indicate that the company would be able to
withstand a haircut of 40% on its sovereign debt exposure whilst still
maintaining a secure level of risk-adjusted capitalisation, which A.M.
Best considers a testament to AMIG’s current capital position.
Under the new management team, AMIG’s performance over the last three
years has experienced a marked improvement, with its combined ratio
averaging just over 90%. Furthermore, the company has achieved growth
despite the stagnant conditions in the market whilst also maintaining
sound technical profits and now ranks as the third-largest insurer in
AMIG benefits from the support of GIC, which has begun to implement a
group-wide enterprise risk management framework. Furthermore, the
centralisation of some departmental functions, the brand harmonisation
project and the group-wide reinsurance treaty that has been negotiated
by GIC, all support A.M. Best’s opinion that parental support is likely
to be forthcoming in the event of a crisis.
A.M. Best is currently monitoring the economic and political situation
in Egypt carefully and expects such external factors to be the likely
drivers of any future rating movements, both negative and positive.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Key criteria utilised include:
“Understanding Universal BCAR”; “Understanding BCAR for Life/Health
Insurers”; and “Assessing Country Risk”. Best’s Credit Rating
Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a
link to required disclosures: A.M.
Best Europe - Rating Services Limited Supplementary Disclosure.
A.M. Best Europe – Rating Services Limited is a subsidiary of A.M.
Best Company.Founded in 1899, A.M. Best Company is the world's
oldest and most authoritative insurance rating and information source.
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