S&P Raises Rating on Saudi Arabia’s NCCI to ‘A’

May 24, 2006

Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on The Company for Cooperative Insurance (NCCI) of the Kingdom of Saudi Arabia to “A” from “A-“. The outlook is stable.

“The upgrade reflects the company’s continuing dominance of the local market, the earnings potential from significant growth forecasts, and management’s proven approach to the risk management of NCCI,” stated S&P credit analyst Kevin Willis.

S&P also noted that the ratings “reflect NCCI’s positive management, very strong competitive position, very strong capitalization, and very strong liquidity. These positive factors are partially offset, however, by NCCI’s heavy exposure to equity investments and potentially volatile operating performance.”

The rating agency said the “stable outlook reflects Standard & Poor’s expectation that NCCI will retain its dominant market position as the newly regulated and restructured Saudi insurance market matures, and that earnings will develop as favorably as forecast by the company, particularly for the medical account.”

S&P also indicated that it “expects NCCI’s capitalization to remain very strong, driven principally by the extremely strong capital adequacy and supported by a good earnings stream and strong financial flexibility available to the company. Operating performance will remain good, with a combined ratio below 100 percent and average ROE higher than 10 percent. The impact of very rapid policy volume growth on both loss and expense ratios remains untested, however. Standard & Poor’s believes there is limited likelihood of the ratings on NCCI being raised further until the Saudi operating and competitive environment achieves greater long-term stability. Conversely, the ratings could be negatively affected by any material weakening of capital or of earnings prospects.”

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