Sunday 09, September 2018 by Jessica Combes

Union Insurance Company’s ratings affirmed


A.M. Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of Union Insurance Company P.J.S.C. (Union) (United Arab Emirates).

The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect Union’s balance sheet strength, which A.M. Best categorises as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

Union’s balance sheet strength is underpinned by risk-adjusted capitalization that A.M. Best expects to be maintained at the strongest level, partly supported by the company’s continued actions to de-risk its investment portfolio. Additionally, Union has increased its reinsurance utilisation resulting in lower net underwriting leverage. The combination of these measures is also expected to allow Union to meet its local solvency requirements. An offsetting rating factor is the company’s higher reinsurance dependency, which is factored in the overall balance sheet strength assessment of strong.

The company reported a sound pre-tax operating profit of AED 9 million for the first six months of 2018, with a good technical profit offset by a loss from investment activities. Prospective earnings volatility is expected to be dampened by a continued shift to less volatile investment asset classes. Over the medium term, A.M. Best expects the company to benefit from a material increase in reinsurance commission income that should soften the loss of income from an increase in premium cessions to the reinsurance market.

Union’s domestic market share has grown noticeably over the past three years, based on gross written premiums, driven by strong growth in its life and medical book. The company’s growth benefits from its innovative approach to product development. Prospective premium growth is likely to be more moderate relative to the company’s compounded average growth rates of approximately 30 per cent over the past five years (2013-2017), reflecting a larger emphasis on profitable underwriting. Although new business has been profitable to date, A.M. Best believes competitive market conditions in the UAE will challenge prospective profitability.

Features & Analyses

Economics Adapting to a new era

  Abdullah Al-Fozan, Chairman of KPMG MESA and KPMG Saudi Arabia, provides an exclusive commentary on the Kingdom’s business… read more