Fitch Ratings expects that the impact of the coronavirus pandemic on Oman Re is limited and manageable for the reinsurer due to the company's good capital position.
Furthermore, a potentially lower-for-longer interest-rate scenario could result in sustained pressure on the capital and earnings of Oman Re and its peers, Fitch adds in a commentary.
Fitch has affirmed Oman Re's Insurer Financial Strength (IFS) Rating at 'BBB-' (Good). The rating outlook is negative. Fitch says that the affirmation reflects Oman Re's good capitalisation and financial performance.
However, the rating is constrained by the company's moderately weak business profile. The negative outlook reflects the uncertainty and increased risk for Oman Re's earnings in 2020 as a result of the coronavirus pandemic, which follows a poor underwriting performance in 2H19.
Fitch expects slight deterioration in Oman Re's capital metrics and financial performance due to the coronavirus, including increased credit defaults and rating migration on the investment portfolio over the near term.
The international credit rating agency's view of Oman Re's capitalisation is reflected in a Prism Factor-Based Model (FBM) score of 'Adequate' in 2019 (unchanged from 2018). Fitch's total financing and commitments ratio, which makes use of a broader definition of debt, was zero in 2019.
Oman Re's good financial performance is reflected in a combined ratio of 107% in 2019, albeit weaker than 97% in 2018, due to three large losses in 2H2019. Fitch expects Oman Re's combined ratio to remain over 100% in 2020 (1H2020: 103%) despite limited exposure to business interruption lines that may be affected by COVID-19 and no exposure to events cancellation. Its net income return on equity slightly increased to 4% in 2019 (2018: 3%) as good investment returns offset adverse claims experience.
Fitch regards Oman Re's business profile as moderate relative to that of non-life and reinsurance companies in Middle East. Oman Re is a well-diversified non-life reinsurer with a substantive business franchise operating mainly in the Middle East. Fitch views the business risk profile as less favourable since property, fire and marine lines are more volatile than health and motor, which dominate most of the markets Oman Re writes business in.
Fitch believes Oman Re's investment portfolio is conservative and highly liquid, but concentrated in Oman. Oman Re's risky assets-to-capital was 27% at end-2019 (2018: 33%) as 55% of its investments were allocated in cash and cash equivalents at Omani banks. Oman Re's prudent reserving rating is a key strength. Oman Re keeps a buffer over both its best and prudent estimates.