The credit fundamentals of Al Ittihad Al Watani (L'Union Nationale) Societe Generale D'Assurances du Proche Orient (Al Ittihad) will remain largely insulated from the heightened risk in the economic, political and financial system of Lebanon, where the company is domiciled and holds some assets, given that the majority of its operations and investments are located in the UAE, says AM Best.
The international credit rating agency has removed from under review with negative implications and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Al Ittihad. The outlook assigned to these credit ratings is stable.
The ratings reflect Al Ittihad’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
Al Ittihad’s balance sheet strength is underpinned by risk-adjusted capitalisation comfortably at the strongest level, as measured by Best’s Capital Adequacy Ratio, after adjustments made to reflect the heightened risks associated with Lebanese assets in the model. The balance sheet strength assessment also factors in the company’s highly liquid and conservative investments held in the UAE, which constitutes most of its investment portfolio.
Al Ittihad’s operating performance has improved significantly since 2017 as a result of actions implemented by management, which included putting the company’s Lebanese portfolio into run-off and focusing on its profitable operations in the UAE.
AM Best expects prospective operating performance to remain adequate over the underwriting cycle, supported by continued profitability in the UAE and the successful management of the company’s run-off portfolios.
Al Ittihad’s business profile assessment reflects its market position as a midtier player in the highly competitive UAE market, as well as its solid distribution capabilities, leveraging the brokerage network of its parent, Nasco Insurance Group (Nasco). Al Ittihad posted gross written premiums of LBP107bn ($70.6m) in 2019 and has benefited from increased diversification by line of business since the transfer of established portfolios of Nasco distributed business in the UAE to the company in 2017.
Al Ittihad is strategically important to Nasco as an underwriting platform in the UAE, and continues to receive technical support from the group. As a result, capital extraction from Al Ittihad by its shareholders to a level that would weaken its balance sheet strength is considered unlikely, and no drag is assigned to the ratings, despite negative pressures on the creditworthiness of Nasco.