AM Best Assigns Credit Ratings to Suez Canal Insurance
AM Best has assigned a Financial Strength Rating of B- (Fair) and a Long-Term Issuer Credit Rating of “bb-” to Suez Canal Insurance (SCI) (Egypt). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect SCI’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
SCI’s balance sheet strength is underpinned by risk-adjusted capitalisation at the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR), for the financial year ended June 2019. Capital consumption is driven largely by asset risk arising from the company’s concentrated investment portfolio, which is weighted toward domestic fixed income securities and real estate. The balance sheet strength assessment also factors in the company’s solid liquidity to cover net technical provisions. A partially offsetting factor is SCI’s high dependence on reinsurance, although the associated credit risk is managed largely through the use of a stable reinsurance panel of good credit quality.
SCI’s operating performance is assessed as adequate, reflective of a five-year (2015-2019) weighted average return on equity (ROE) of 14.9%. While the company’s ROEs have been good, they should be viewed in the context of Egypt’s price inflation, which has averaged 15.5% over the same period. The majority of the company’s operating profits can be attributed to strong investment income, indicative of SCI’s elevated asset leverage and Egypt’s high interest rate environment. SCI’s historical underwriting performance has been modest, with a five-year weighted average combined ratio of 103.0%. However, following corrective actions by management, the company’s combined ratio has trended downward, reaching 100.0% for the financial year 2019, down from a high of 107.5% in 2015. AM Best expects prospective underwriting performance to continue to improve as SCI implements strategic initiatives, including changes to its reinsurance structure and an increased focus on underwriting discipline and profitable growth.
The business profile assessment reflects SCI’s position as the one of the largest private sector insurers in Egypt’s insurance market by net written premium, with a non-life market share of approximately 5% at year-end 2019. However, the company’s profile is limited to operating within Egypt, and, on a net premium basis, its portfolio is concentrated heavily toward the motor business line.
The company historically operated basic risk management practices; however, in recent years, SCI has undertaken steps to establish and formalise an enterprisewide risk-aware culture. AM Best expects that further improvements in SCI’s ERM framework and practices, if implemented successfully, will allow the company to reliably manage its risk exposures.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.