A.M. Best Europe – Rating Services Limited has downgraded the
financial strength rating to B+ (Good) from B++ (Good) and the issuer
credit rating to “bbb-” from “bbb+” of Adamjee Insurance Company
Limited (Pakistan). Both ratings have been placed under review with
A.M. Best’s decision to downgrade the ratings of Adamjee was driven by
new information that came to light regarding the company’s probable
maximum loss (PML) estimations, which stand considerably higher than
those used in previous assessments of the company. In A.M. Best’s
opinion, Adamjee has sufficient capital on a risk-adjusted basis to
cover risks in its everyday business. However, in line with A.M. Best’s
methodology companies’ capital is stressed for both one in 100 years and
one in 250 years catastrophe events in Best’s Capital Adequacy Ratio
(BCAR) model. In view of the considerable catastrophe risk being run by
the company (in a one in 250 years event) relative to its capital base,
A.M. Best considers Adamjee’s risk-adjusted capitalisation, as measured
by Best’s Capital Adequacy Ratio (BCAR), to be significantly weakened.
A.M. Best understands that management is currently exploring options
with regards to increasing catastrophe cover, and A.M. Best is
monitoring the situation closely.
A.M. Best continues to recognise Adamjee’s excellent domestic franchise
and satisfactory profitability. Established in 1960, Adamjee is one of
Pakistan’s oldest insurers, and in A.M. Best’s opinion, enjoys an
excellent domestic franchise. The company wrote GWP of PKR 11.1 billion
in 2011, with 80% of these premiums emanating from Pakistan, where the
company enjoys a leading position and a 29% market share.
Despite the difficult operating environment characterised by a high
level of price competition, Adamjee has a good track record of
generating small technical profits. The company’s overall profitability
is satisfactory, though results have weakened somewhat in the past two
years. Adamjee generates a good level of investment income; however,
A.M. Best considers Adamjee’s investment portfolio, which is
concentrated in affiliated equities, to be a source of risk. A.M. Best
notes that investment returns create additional volatility in the
company’s net income given that revaluations are taken through the
profit and loss account.
In A.M. Best’s opinion, further negative rating actions are likely in
the event that Adamjee does not reduce its high PML in line with
management’s plans. Positive rating actions are considered to be
unlikely in the near term.
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”; “Catastrophe Analysis in A.M. Best
Ratings”; 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.
For more information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS
A.M. Best Co.Dean Portelli, +(44) 20 7397 0267Senior
Mistry, +(44) 20 7397 0325Associate Directormahesh.firstname.lastname@example.orgRachelle
Morrow, +(1) 908 439 2200, ext. 5378Senior Manager, Public
Peavy, +(1) 908 439 2200, ext. 5644Assistant Vice President,
Source: A.M. Best Co.