Middle East Insurance Company (MEICO), one of Jordan's biggest insurers, has a track record of operating profitability, supported by positive underwriting results, as evidenced by a five-year (2015-2019) weighted average combined ratio of 95.1%, and modest investment returns, says AM Best in a report last month.
However, over the past few years, fierce competition has increased pressure on MEICO’s technical margins, which has translated into a deterioration in the company’s combined ratio to approximately 97% in both 2018 and 2019 (as calculated by AM Best).
AM Best expects MEICO to report better underwriting results in 2020, due to the positive impact of COVID-19-related travel restrictions on claims experience in its motor portfolio.
Future profit picture
However, uncertainty remains about future profitability and further negative pressure could be placed on the ratings should the operating performance not stabilise at a level commensurate with the strong assessment.
AM Best has affirmed MEICO's Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-”. The outlook of these credit ratings remains negative.
The ratings reflect MEICO’s balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
The negative outlook reflects pressure on the company's risk-adjusted capitalisation, driven by the investment risk stemming from its significant exposure to equity and real estate holdings, combined with its limited organic capital generation.
Balance sheet strength
MEICO’s balance sheet strength is underpinned by risk-adjusted capitalisation at the very strong level, as measured by Best’s Capital Adequacy Ratio. Although the company has suspended its dividend in 2020 and sold a significant portion of an equity holding (reinvesting the proceeds in bank deposits), it remains heavily invested in Jordan’s real estate and equity markets, which leaves its capital base exposed to potential volatility.
Other offsetting factors in the balance sheet strength assessment are the company’s significant dependence on reinsurance, mitigated partially by a reinsurance panel of good credit quality, and its limited organic capital generation due to historically high dividend payouts and weaker operating performance in recent years.
MEICO has a good competitive position within Jordan, with gross written premium of JOD42.2m ($59.6m) in 2019. However, the company’s business profile assessment is constrained by its high geographic and product concentration.