A.M. Best downgrades issuer credit rating of Arab Orient Insurance Company
A.M. Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “bbb+” and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Arab Orient Insurance Company (gig Jordan) (Jordan).
Concurrently, A.M. Best has placed these Credit Ratings (ratings) under review with negative implications.
These rating actions reflect the deterioration in the company’s operating performance in 2016 and the first quarter of 2017, which highlighted deficiencies in its enterprise risk management (ERM) capability, and the impact that the poor results reported as at end of March 2017 is expected to have on gig Jordan’s regulatory solvency position, which was deemed marginal at the end of 2016.
Whilst gig Jordan has historically generated strong operating profits, supported by good technical performance, results for 2016 and first quarter 2017 have been negatively impacted by the correction of an IT system calculation error, which had led in the past to inflating net premium written. As a result, gig Jordan reported a profit before tax of JOD 1.4 million in 2016, compared to JOD 5.7 million in 2015, and a loss of JOD 4.2 million in the first quarter of 2017. This IT system calculation error, which remained uncovered for years, highlighted deficiencies in the company’s ERM capability, particularly surrounding operational controls.
The losses reported for the first quarter of 2017 led to a decrease in gig Jordan’s shareholders’ equity to JOD 29.5 million at the end of March 2017, down 13 per cent compared to JOD 33.8 million at the end of 2016. This is expected to lead to a decline in the company’s regulatory solvency position, which was already deemed marginal at the end of 2016.
A.M. Best will continue to closely monitor gig Jordan and expects to resolve the under review with negative implications status of the ratings following assessment of the impact the corrective actions taken by management will have on the company’s profitability and regulatory solvency position.