LONDON, 20 October 2023—(BUSINESS WIRE)–AM Best affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Alliance Insurance (PSC) (Alliance) (United Arab Emirates). The outlook for these credit ratings (ratings) is stable.
The ratings reflect Alliance’s strong balance sheet, which AM Best rates as very strong, as well as its strong operating results, limited business profile and appropriate corporate risk management.
Alliance’s balance sheet strength is supported by its risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), at its strongest level. AM Best expects the company to maintain a significant capital buffer above the highest BCAR threshold, supported by robust earnings retention, low underwriting leverage and a conservative investment portfolio. An offsetting factor in evaluating balance sheet strength is Alliance’s reliance on reinsurance for non-life risks; however, the associated credit risk is partially mitigated through the use of a diversified reinsurance panel with sound financial stability.
Alliance has a track record of strong operating performance, evidenced by a five-year (2018-2022) weighted average return on equity (ROE) of 8.3%. The company’s performance continues to be driven primarily by its life underwriting earnings, which remained flat in 2022. The company reported strong non-life technical earnings, as evidenced by a five-year weighted average combined ratio of 92.4%. Nevertheless, the profitability of Alliance’s non-life insurance business deteriorated significantly at the end of 2022, as reflected by a combined ratio of 129.7% (calculated by AM Best), given the increased competitive environment in the medical and automotive businesses in the United Arab Emirates (UAE). Management has taken action to correct the poor performance of its non-life insurance portfolio. The company’s performance is further supported by robust investment income, illustrated by a five-year average net investment return (including earnings) of 4.7%. Looking ahead, AM Best expects that Alliance’s life insurance segment will continue to be the main driver of its underwriting profitability; however, AM Best also expects an improvement in the company’s non-life technical metrics.
Alliance’s business profile as a medium player in the local market is unlikely to change in the near future as the company has limited product diversification and operates in an increasingly competitive insurance market in the UAE where finding profitable growth opportunities is a challenge.
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