Arab Reinsurance Company recorded profitable operating results in all of the past five years (2020-2024) and generated a robust return-on-equity ratio of 4.7% in 2024, noted AM Best.
The reinsurance company has reported positive annual underwriting results since 2021, which reflect portfolio remediation actions taken by Arab Re’s management, including exiting under-performing risks and revising underwriting guidelines, said the global credit rating agency. Investment income is expected to remain a strong contributor toward overall earnings, resulting from the company’s relatively low underwriting leverage and the favourable global interest rate environment.
AM Best has affirmed Arab Re’s Financial Strength Rating of ‘B’ (Fair) and Long-Term Issuer Credit Rating of ‘bb’ (Fair). The outlook of these credit ratings is ‘Stable’.
The ratings reflect Arab Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
Balance sheet strength
Arab Re’s balance sheet strength is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the strongest level at year-end 2024. Arab Re’s balance sheet strength is supported by its low underwriting leverage and continued growth of its offshore asset portfolio, which has improved the company’s liquidity position and risk-adjusted capitalisation.
Offsetting rating factors include the very high economic, political and financial system risks in Lebanon, where Arab Re is domiciled and holds just under 40% of its invested assets. Nevertheless, the company has increased its holdings of good-quality foreign investments successfully in recent years, which has made its balance sheet more resilient to asset-side stress tests, including the full impairment of Lebanon-based assets.
Business profile
Arab Re has a niche position in its core markets in the Middle East and North Africa region, built upon its original role as a reinsurer for Arab insurance markets and long-standing relationships with cedants. “Despite the company’s geographic reach, its growth potential is limited, as reinsurance markets in the region remain highly competitive,” said AM Best.