Dubai-based Union Insurance Company has improved financial performance follows the discontinuation of several unprofitable lines of business in 2023, including the Oman Credit life product and individual life business in the UAE, says Fitch Ratings.
In 2024, Union reported improved financial performance with a net income return on equity of 17.1% (2023: -1.2%) and a three-year average return on equity of 5.7%. The company also reported strong profitability in 1H2025 with a net profit after tax of AED23m [$6.3m] (1H2024: AED13m).
Rating upgraded
Fitch has upgraded Union’s Insurer Financial Strength (IFS) rating to 'BBB+' from 'BBB'. The outlook is ‘Stable’.
The upgrade reflects Union's improved financial performance following management actions to improve profitability of the underwriting book. The rating also reflects the insurer's strong capitalisation, good company profile and strong reinsurance protection.
Aside from improved financial performance, key factors driving Union’s rating include:
Medium-sized Insurer: Union is a medium-sized insurance company in the UAE with reported insurance revenue of AED691m in 2024 (2023: AED634m). The company ranked 14th in the UAE based on gross written premiums out of the 29 listed national insurance companies, but it is well diversified by line of business, writing a mixture of medical, motor, non-motor and life insurance. The medical business is the largest line by premium, representing 52% of total net written premiums, largely driven by higher net retentions on this line.
The property and casualty business is well diversified by product line, including accident, fire, motor and engineering business. The life business has consisted of group life business in the UAE since Union exited its Omani bancassurance business and the UAE individual life book. Fitch's assessment of corporate governance is neutral.
Strong Capitalisation: Fitch regards Union's capitalisation and leverage as strong, as reflected in an unchanged 'Extremely Strong' Prism Global score at end-2024. Fitch’s view of Union's capitalisation is supported by the absence of financial leverage in its capital structure. Fitch's assessment of the company's capitalisation benefits from low gross and net leverage and an improved local solvency coverage ratio of 170% at end-1H25 (end-2024: 143%).
Strong Reinsurance Protection: Union makes significant use of reinsurance across all classes of business, with lower retention rates than the UAE market average for all lines except medical and motor. There has been a significant increase in motor business retention to 78% from 46% as the company has increased retention but also increased excess-of-loss protection cover to AED60m from AED50m. Fitch’s view of Union's reinsurance is supported by the strong quality of the reinsurance panel, with reinsurers mostly rated above 'A-'.
Conservative Investment Portfolio: Fitch views Union's investment and liquidity risk as low due to a large proportion of bank deposits in its investment portfolio. The company has divested its real estate exposure in recent years, leaving only modest investment in equities as the only risky assets. These represented 18% of its total shareholder equity at end-2024 (end-2023: 32%).
Adequate Reserving Practices: Fitch scores Union's reserving adequacy at 'bbb', aligned with its neutral evaluation for the UAE. The company reserves at best estimate and maintains no buffer above this. The reserves are booked at the level recommended by its external appointed actuary, based in the UAE.