A.M. Best assigns ‘BBB’ rating to Egypt’s state insurance firms
A.M. Best has assigned Monday evening a financial strength rating of B++ (Good) and an issuer credit rating of “bbb” to Egyptian state-run Misr Life Insurance Company and Misr Insurance Company. The outlook assigned to both ratings is stable.
The two firms are wholly owned subsidiaries of Misr Insurance Holding Company (Misr Holding).
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.
Misr Life
“The ratings of Misr Life reflect its solid risk-adjusted capitalisation, track record of strong and stable technical results and its superior market position as a leading life insurer in the domestic market. These positive rating factors are partially offset by its satisfactory albeit emerging enterprise risk management, in addition to the elevated level of economic and financial system risk associated with Egypt.” A.M. Best said.
“The ratings also factor in the financial strength and flexibility of the parent company, as well as Misr Life’s strategic importance to the group.”
“Misr Life has established an excellent business profile within Egypt’s domestic life insurance market, with its leading position contributing to a market share of approximately 42 percent of life gross written premiums. The business mix consists mainly of group life products and individual endowment policies. The company has an extensive agency network allowing it access to the entire country.”
“Misr Life intends to further diversify its market profile by providing unit-linked products once the distribution platforms are in place.”
Moreover, the rating agency also said that Misr Life has solid risk-adjusted capitalisation at financial year-end of 2015 with capital requirements largely driven by the company’s asset portfolio, which emanates from its traditional life products that are restricted to Egypt. Misr Life’s capital position is expected to decline due to high earnings distribution; however, it is expected to remain supportive of the ratings and sufficient to absorb its strategic objectives over the next few years. The company’s risk-adjusted capitalisation is bolstered by its real estate portfolio, for which market values are significant in excess of net book values. Hence, Misr Life’s capital position is subject to volatility given its sensitivity to movements in the market price of its real estate portfolio. Misr Life has produced a track record of strong operating results underpinned by stable technical earnings and relatively stable investment income. The company has a mature portfolio benefitting from strong new business generation and low lapse rates. Misr Life’s prudent approach to pricing and reserving has ensured that its commitment to guaranteed business is adequately covered by the income generated from its core operations.
Misr Life has a silo approach to manage risk with good handling and understanding of its key exposures. Misr Life is in the process of formalising and implementing its risk management framework with the assistance of its lead reinsurer. In addition, Misr Life is recruiting a full time manager to take the ownership and implement the new and enhanced framework.
Political and financial instability, as well as social unrest in Egypt have the potential to disrupt the economic conditions in Egypt. Despite Misr Life’s track record of successfully navigating these challenging market conditions, A.M. Best continues to monitor the impact these external factors may have on the company’s operations.
Misr Insurance
“The ratings reflect Misr Insurance’s excellent business profile in Egypt, strong risk-adjusted capitalisation and track record of good operating performance. An offsetting rating factor is the company’s exposure to the very high level of political risk and high levels of economic and financial system risks associated with operating in Egypt.”
“The ratings also factor in the financial strength and flexibility of the parent company, as well as Misr Insurance’s strategic importance as the non-life and reinsurance operations of the group.”
A.M. Best also state that Misr Insurance has an excellent business profile as a leading non-life insurer in Egypt. The company’s premium base surpassed 4.8 billion Egyptian pounds (US$0.6 billion) in 2015, equating to a domestic non-life market share of approximately 55 percent. Despite more than 90 percent of the company’s premiums originating from Egypt, its underwriting portfolio is well balanced by class of business. The company holds a market leading position in fire, motor, marine, engineering, oil and aviation lines of business.
The company’s risk-adjusted capitalisation remained at a strong level during 2015. Misr Insurance’s capital consumption is driven by underwriting and investment operations, with the company’s investment portfolio, in particular, attracting higher capital charges given its focus toward Egyptian denoted assets. The company’s capital and surplus is supported by significant retrograded fluctuation (equalisation) reserves of which full capital credit has been given in Best’s Capital Adequacy Ratio (BCAR) model. Prospective capital adequacy is expected to remain supportive of the company’s business strategy over the medium term, supported by a prudent dividend policy and strong retained earnings.
The company has demonstrated a track record of good pre-tax operating results, evidenced by profits in each of the last five reported years (2011-2015). An improved pre-tax profit of 1.1 billion pounds (US$144.1 million) was reported for the financial year to June 2015, compared with 0.9 billion pounds (US$ 128.6 million) in 2014. Prior to 2013, technical operations had generated losses, mainly due to weak performance from the company’s mandatory motor third-party liability portfolio. However, changes in the limit of liability attached to this line of business, combined with increased tariffs, have enabled improved performance. In addition, the company has strengthened its risk selection and underwriting discipline on other lines of business. As a consequence of these changes, the company has reported technical profits in each of the last two years. However, technical earnings remain marginal and profitability continues to be driven by non-technical income from the company’s large invested asset base.
Political and financial instability, as well as social unrest in Egypt, has the potential to disrupt the economic conditions in Egypt. Despite Misr Insurance’s track record of successfully navigating these challenging market conditions, A.M. Best continues to monitor the impact these external factors may have on the company’s operations.
