A.M. Best has downgraded the Financial Strength Rating (FSR) to B+ (Good) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to "bbb-" from "bbb+" of Jordan Insurance Company Plc. (JIC) (Jordan).
The outlook of the Long-Term ICR has been revised to stable from negative, while the outlook of the FSR remains stable.
The Credit Rating (rating) downgrades reflect deterioration of JIC's balance sheet strength fundamentals. Risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), has declined over recent years despite management actions aimed at bolstering capital adequacy. Over the past five years, onerous dividend payments and underwriting growth, as well as fair value losses from the company's concentrated and high risk investment portfolio, have negatively impacted its level of risk-adjusted capitalisation. In addition, JIC's liquidity position deteriorated notably in 2017, with net operational cash outflows eroding the company's cash resources, requiring it to utilise its bank overdraft facilities.
Underpinning JIC's ratings are its balance sheet strength, which A.M. Best categorises as strong, as well as its strong operating performance, neutral business profile and marginal enterprise risk management.
The company's balance sheet strength is expected to be managed to a strong level over the medium term. Management's intention to divest certain capital-intensive investments may lead to an improvement of risk-adjusted capitalisation if executed; however, the long-term benefits will be dependent on JIC's ability to retain the proceeds within the company. Offsetting balance sheet factors include the company's limited liquidity and asset liability management, weak regulatory solvency margin and moderate dependence on reinsurance.
JIC's operating performance is viewed as strong, although somewhat volatile. The company's underwriting performance has been excellent historically, with non-life combined ratios that have outstripped many of its local competitors. However, in 2016 and the first nine months of 2017, competitive market conditions across JIC's non-life operations and reserve strengthening requirements in the United Arab Emirates, have led to near breakeven combined ratios. Offsetting this weaker performance has been the company's life business, which has demonstrated consistently good profitability.
The company has a good competitive position within Jordan, ranked second in the market based on gross written premiums in 2016. Despite this, the Jordanian insurance market remains relatively small by international standards with limited growth opportunities. JIC's operations are also relatively concentrated by geography with approximately 75 per cent of premium emanating from Jordan.
JIC's risk management framework is developing, and its risk management capability is viewed to be marginal relative to the size and complexity of its operations. The company has solid controls and adequate capability for key underwriting risks; however, A.M. Best considers there to be deficiencies in the management of investment, liquidity and capital management risks. Country risk is also a key risk to JIC given that its underwriting and investment operations are focused principally in Jordan (A.M. Best's Country Risk Tier 4).
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