AM Best Revises Outlooks to Negative for Oman Insurance Company P.S.C.

Business Wire

LONDON--(BUSINESS WIRE)-- AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a” of Oman Insurance Company P.S.C. (OIC) (United Arab Emirates).

The Credit Ratings (ratings) reflect OIC’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

The revised outlooks to negative largely reflect the decline in OIC’s operating performance, which has placed pressure on AM Best’s current assessment of strong. Profitability has been consistently below the company’s historical average and regional peers. OIC has implemented initiatives to improve its operating performance; however a level of execution risk still exists, and is encumbered further by the challenging market conditions and significant pressure on rates.

In 2018, the company reported a profit after tax of AED 10.1 million, a significant decrease relative to the prior year result of AED 104.5 million. The deterioration in OIC’s operating performance was driven primarily by a number of one-off management actions including the impact of the early adoption of IFRS 9 and the strengthening of cautious provisions in relation to legacy claims. AM Best acknowledges OIC’s management actions taken in 2018 were aimed at remediating historical issues and expects these to translate into improved prospective performance. Furthermore, future earnings are expected to be supplemented by increased non-technical earnings from the sale of illiquid assets. Successful implementation of OIC’s current business plan, with financial metrics moving in line with the strong assessment will result in a revision of the outlooks back to stable. Failure to return to historic levels of profitability, or persistent one-off negative adjustments to earnings, will likely result in negative rating actions.

OIC’s balance sheet strength is underpinned by risk-adjusted capitalisation, which is in excess of the level required to support the strongest assessment, as measures by Best’s Capital Adequacy Ratio (BCAR). In 2018, management took actions to improve the quality of the balance sheet, primarily by materially reducing the amount of debt borrowings, as well as improving credit controls and reducing overdue debtor balances. Furthermore, the balance sheet strength assessment benefits from a conservative investment strategy and a well-rated reinsurance panel to mitigate its reinsurance dependence. AM Best expects OIC to actively manage its capital position ensuring its capital base supports future growth plans, sustained by consistent earnings retention and further de-risking of its investments.

OIC has a leading market position in the United Arab Emirates (UAE), where it stands as the largest listed insurance company by gross written premium. In 2018, gross premium revenues remained stable, reaching AED 3.7 billion (2016: AED 3.7 billion). Whilst OIC’s business continues to be concentrated in the UAE, it has a diversified underwriting portfolio across life and non-life segments, and through international facultative business.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.