A.M. Best Affirms Ratings of Oman Insurance Company P.S.C. [Professional Services Close – Up]

A.M. Best Europe - Rating Services Limited has affirmed the financial strength rating of A (Excellent) and issuer credit rating of "a" of Oman Insurance Company P.S.C. (OIC) (United Arab Emirates).

The outlook for both ratings remains stable.

The ratings reflect OIC's strong risk-adjusted capitalisation, enhanced enterprise risk management (ERM) and strong franchise within the United Arab Emirates (UAE). A partially offsetting rating factor is the company's declining underwriting profitability.

In 2012, OIC experienced a major change in its senior management. Subsequently the company restructured its existing operations, reviewing all business units and establishing greater controls across the organisation. Most notable are the improvements in its ERM, which has been considerably enhanced over the past year and integrated within all business units.

OIC's risk-adjusted capitalisation strengthened in 2012, due to its good level of retained earnings and the strategic disposal of equities and other illiquid assets within its investment portfolio. This has created surplus capital, which will be allocated to develop the company's core underwriting activities.

OIC has maintained a leading position within the UAE, with a diversified portfolio across both life and non-life business segments. Furthermore, OIC has expanded its franchise regionally having acquired Dubai Group Sigorta in 2012, a Turkish non-life insurance operation.

OIC's underwriting performance declined in 2012, driven by a change in business mix towards medical healthcare, which operates at a higher loss ratio, underwriting costs associated with the recently acquired Turkish subsidiary and losses emanating from the energy portfolio. OIC's combined ratio (excluding medical) increased to 96 percent in 2012 from 71 percent in 2011, whilst the life profit margin (including medical) decreased to 20 percent from 25 percent. However, OIC's overall results remained in line with past performance supported by investment returns of 1.6 percent in 2012. Moreover, results for the first half of 2013 indicated a further strain on OIC's underwriting performance with investment income expected to drive overall earnings.

Upward rating movement could occur if OIC is able to successfully grow its regional franchise while maintaining robust profitability. Downward rating pressure could arise if there is a material decline in the company's risk-adjusted capitalisation and/or underwriting performance falls below its peer group.

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. Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

A.M. Best Company is an insurance rating and information source.

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