Ratings Recap London General, Arab Orient (UAE) Arab Orient (Jordan)

April 29, 2010

A.M. Best Co. has affirmed the financial strength ratings of ‘A-‘ (Excellent) and issuer credit ratings of “a-” of London General Insurance Company Limited (LGI) and London General Life Company Limited (LGL), both with stable outlooks. LGI and LGL are likely to “maintain excellent risk-adjusted capitalization in 2010, supported by a modest increase in shareholders’ funds for both companies,” said best. “LGI’s risk-adjusted capitalization continues to benefit from letters of credit, which the company holds as collateral to mitigate reinsurer default risk.” In addition best noted that “LGI is expected to maintain strong technical performance in 2010, despite the ongoing effect of the economic downturn on the level of creditor claims. The company achieved an excellent technical profit of approximately £14 million [$21.37 million] in 2009 (2008: £12.7 million [$19.385 million]). The result benefited from the structured profit sharing agreements that LGI has in place with its main clients, which largely mitigated an increase in net claims incurred of approximately £11.5 million [$17.56 million].” LGL is also expected to report “an excellent technical result at year-end 2010, comparable to the £1.6 million [$2.44 million] achieved in 2009. The company’s strong technical performance in 2009 was supported by profitable multi-year contracts written in prior years, and also by reduction in its long-term business provision of approximately £14.8 million [$22.59 million] (2008: £2 million [$3.05 million]). In Best’s opinion “LGI and LGL are expected to maintain their good specialist profile in the UK, Ireland and Europe. The companies share a broad client base, and their combined underwriting portfolio includes extended warranty, accidental damage and creditor insurance. The net premium income of both companies declined in 2009, mainly due to weak economic conditions in the UK and Europe. In addition, the growth of the companies’ UK business was restricted by the Competition Commission’s investigation into payment protection insurance.”

A.M. Best Co. has assigned a financial strength rating of ‘A’ (Excellent) and an issuer credit rating of “a” to Arab Orient Insurance Company (PSC) of the United Arab Emirates, both with stable outlooks. The ratings reflect Orient’s “superior risk-adjusted capitalization, strong business position in the United Arab Emirates (UAE) insurance market and very good profitability. Offsetting factors are the geographic concentration risk and the high level of retrocession.” Best indicated that in its opinion, “Orient has a superior risk-adjusted capitalization, which is supportive of the current business and the projected growth in the next two years. The historically high level of profits retention has enabled the company to consistently increase its capital base.” Best also expects Orient “to keep this approach going forward, further strengthening its risk-adjusted capitalization.” The Company has developed a “strong multichannel distribution network and experienced a solid business growth in recent years (the premiums’ compound annual growth rate has been in the range of 25 percent over the last five years), becoming one of the leading insurers in the UAE and reporting gross written premiums of AED 1 billion ($273 million) in 2009. At the same time, the profitability of the company has remained very good, a result of the excellent technical performance (combined ratio was below 60 percent in 2009) and the regular income from the financial assets portfolio. Orient’s business is originated almost entirely from the UAE, which exposes the company to concentration risk.” Best said it acknowledges Orient’s commitment to expand in other Middle Eastern and North African countries as a positive step, which can be smoothed by the presence of the parent group (Al-Futtaim) in the targeted markets.” In addition best noted that Orient cedes “approximately 70 percent of its premiums. The company has developed a mutual satisfactory relationship with a broad panel of reinsurers, mainly leading global companies that are highly rated. Despite Orient’s retention ratio being low when compared to other major insurers in the region, in A.M. Best’s view, the company remains focused on underwriting activity, whilst implementing a prudent investment strategy with financial assets mainly invested in short-term deposits at secure-rated banks.”

A.M. Best Co. has upgraded the financial strength rating to ‘B++’ (Good) from ‘B+’ (Good) and issuer credit rating to “bbb” from “bbb-” of Arab Orient Insurance Company of Jordan, and has revised the outlook on both ratings to stable from positive. Best said the ratings reflect “Arab Orient’s strong risk-adjusted capitalization, strengthened leading business position in its domestic market and continued resilient operating performance.” In Best’s opinion, Arab Orient “has demonstrated a very good track record of strong technical performance, whilst achieving above average growth rates in the Jordanian market. Underwriting profitability continues to improve, reaching JOD 3.7 million ($5.2 million) in 2009, with a combined ratio below 80 percent. Additionally, Arab Orient’s performance is supported by a conservative investment strategy providing modest returns between 3 percent-5 percent.” Best also said it believes that Arab Orient has a very good business profile in Jordan, further consolidating its leading position with a 12 percent share of gross premiums written in 2009. The company’s portfolio reflects local market characteristics, with 75 percent of gross premiums written dominated by medical health care and motor risks. In 2009, Gulf Insurance Company K.S.C. (GIC) acquired a 55 percent shareholding in Arab Orient from the affiliated Jordan Kuwait Bank (JKB), bringing all insurance operations under GIC.” Best said it views this as a positive development, “opening up the possibility of Arab Orient benefitting from technical expertise and support from the group. Additionally, the creation of a group reinsurance program is expected to provide improved capacity and security for Arab Orient. Arab Orient’s prospective risk-adjusted capitalization is expected to remain strong over the next two years, with sufficient retained earnings to support its strategic business plan and a projected growth of up to 15 percent per annum.”

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