A.M. Best revises outlook for Dubai Insurance Company to positive

18/05/2013 08:13 AST

A.M. Best Europe - Rating Services Limited has revised the outlook to positive from stable and affirmed the issuer credit rating (ICR) of "bbb" and the financial strength rating (FSR) of B++ (Good) of Dubai Insurance Company PSC (DIC) (United Arab Emirates). The outlook for the FSR is stable.

The ICR positive outlook reflects DIC's strong record of operating results, improved franchise and developing enterprise risk management (ERM). The ratings of DIC also reflect its very strong risk-adjusted capitalisation and a reinsurance programme of good quality. Offsetting these positive ratings factors are DIC's investment concentrations.

DIC is likely to maintain a very strong risk-adjusted capitalisation over the medium term. The company's capital base is supported by a low level of premium retention and a strong reinsurance panel. A high concentration of equity securities, particularly within the local banking sector, is of some concern and gives rise to volatility in DIC's capital position. However, DIC's capital position is sufficiently strong to absorb this volatility.

Despite competitive pressures in the UAE market, DIC has continued its strong growth levels with 21 per cent achieved in 2012-well ahead of the market.

DIC's growth in recent years has improved its franchise and propelled the company to a top 10 position. However, its portfolio is indicative of the market biased towards medical and motor business on a net basis.

Furthermore, underwriting performance remains strong with a good record of underwriting profitability. DIC's combined ratio improved to 78 per cent in 2012.

DIC's level of ERM is considered to be improving. DIC has developed a better understanding of its risks and is integrating a capital model into its strategic planning process. There remains a disconnect between underwriting and investment risk as DIC's investments remain concentrated in UAE banking equities. DIC has taken steps in diversifying its profile through surplus funds being conservatively invested.

Positive rating pressures can arise through embedding and integration of ERM and the maintenance of underwriting and operational performance.

Considerable deterioration in its operating performance or a failure to embed improvements in ERM could add negative pressure to the current ratings.

CPI Financial