AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of “bb-” (Fair) of Suez Canal Insurance (SCI) (Egypt).
The Credit Ratings (ratings) reflect SCI’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The revised outlooks to negative from stable reflect pressure on SCI’s balance sheet strength, which is sensitive to potential macroeconomic deterioration, and operating performance, with the company reporting underwriting losses in each of the past three years.
SCI’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the very strong level, as measured by Best’s Capital Adequacy Ratio (BCAR), for the fiscal year-end 30 June 2022 (FY 2022). Although BCAR is expected to remain at the very strong level and to improve gradually over the coming years, the company’s capital buffers reduced during FY 2022 and its BCAR was only marginally at the very strong level. Capital consumption is driven primarily by the company’s investment portfolio, which is weighted toward Egyptian fixed income securities and real estate. An increase in economic risk in Egypt could increase the company’s asset risk and negatively impact its BCAR assessment. The company has a relatively high reliance on reinsurance, as evidenced by a premium retention ratio of 47.0% in FY 2022. However, the associated credit risk is mitigated partially by the use of a financially strong reinsurance panel. The balance sheet strength assessment considers SCI’s exposure to the high levels of economic, political, and financial system risks that are associated with operating in Egypt.
AM Best assesses SCI’s operating performance as adequate, with the company having reported a five-year (FY 2018 - FY 2022) weighted average return on equity (ROE) of 15.7%. SCI’s underwriting portfolio has been marginally loss making, evidenced by a five-year weighted average combined ratio of 103.9%. Underwriting results have been constrained by SCI’s very high expense ratio, which remained above 52.0% in each of the past five years. Whilst the company’s overall earnings have been resilient, they should be viewed in the context of the relatively high interest rate environment in Egypt.
The business profile assessment reflects SCI’s position as a mid-tier insurer in Egypt, with a non-life market share of approximately 5% in FY 2022. The company’s profile is limited to operating within Egypt, and on a net premium basis, its underwriting portfolio is concentrated heavily toward the motor and accident lines.
The company historically operated basic risk management practices; however, in recent years, SCI has undertaken steps to establish and formalise an enterprise-wide, risk-aware culture. AM Best expects that further improvements in SCI’s ERM framework and practices, if implemented successfully, will allow the company to manage its risks reliably.
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Stanislav Stoev, ACCA
Senior Financial Analyst
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Associate Director, Public Relations
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