The board of Abu Dhabi National Insurance Co (ADNIC) has given the green light for the company to issue mandatorily convertible bonds worth AED390 million (US$106.2 million).
Furthermore, the board has approved transferring AED350 million from general reserves to retained earnings, in addition to registering and licensing a life insurance company.
Last year, ADNIC said that it had appointed a firm to study options for strengthening the company’s capital. At the end of 2014, the company had an issued share capital of AED375 million, retained earnings of AED45.8 million and general reserves of AED900 million.
Rating implications
A.M. Best said that the period for resolving the under-review-with-negative-implications status on ADNIC’s ‘A-‘ financial strength rating and “a-” issuer credit rating has been extended pending the bonds issue.
The ratings had been earlier placed under review with negative implications, following deterioration in the company’s risk-adjusted capitalisation and operating performance. At that point, ADNIC had begun to undertake a capital enhancement initiative, with management anticipating that capital adequacy would be strengthened by year-end 2015.
“Despite management’s endeavours to adhere to this timeframe, the proposed issuance is the first of its kind in the Middle East insurance market and has taken longer to design and obtain approval for than initially anticipated,” said A.M. Best.
The rating agency noted that while ADNIC has received approval from its Board of Directors, it has yet to obtain shareholder approval. “The company is anticipated to call for a Shareholders’ General Assembly Meeting in January, and subject to the necessary approvals, management expects to execute the transaction by the end of first-quarter 2016,” it added.
Agreements signed
Meanwhile, in early January, ADNIC renewed a memorandum of understanding (MoU) with Schlumberger Group, a global supplier of technology solutions to the customers in the oil and gas sector. Under the terms of the agreement, ADNIC will provide insurance and reinsurance coverage for Schlumberger’s regional oil and gas operations.
Mr Ahmad Idris, ADNIC CEO, said: “As an Insurer, we have a prudent and selective approach towards underwriting corporate and industrial risks. The quality and nature of Schlumberger’s assets in the UAE and across the region make it a strategic contributor to our regional portfolio.”
The renewal of the MoU followed the signing of a partnership between ADNIC and the Mohammed Bin Rashid Fund for SME Support in December. The Fund, launched last April, is an initiative of Dubai SME, the agency of the Department of Economic Development in Dubai mandated to develop the SME sector.
Under the agreement, ADNIC will provide comprehensive insurance protection to cover the small and medium-sized business owners receiving seed capital from the Fund against a variety of contingencies from loss or damage to contents and business premises to death, disability, or illness that impairs their ability to work. In addition, ADNIC will offer protection against business interruption risks resulting from material damage.
ADNIC reported a net loss of AED32.4 million for the three months ended 30 September 2015, compared to a net loss of AED10.5 million for the same quarter in 2014.
AED1 = US$0.27