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A.M. Best Upgrades Issuer Credit Rating of Al Ittihad Al Watani
[June 08, 2018]

A.M. Best Upgrades Issuer Credit Rating of Al Ittihad Al Watani

A.M. Best has upgraded the Long-Term Issuer Credit Rating to "bb+" from "bb" and affirmed the Financial Strength Rating of B (Fair) of Al Ittihad Al Watani (L'Union Nationale) Société Générale D'Assurances du Proche Orient, sal (Al Ittihad) (Lebanon). The outlooks of these Credit Ratings (ratings) have been revised to positive from stable.

The ratings reflect Al Ittihad's balance sheet strength, which A.M. Best categorises as very strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM). The ratings also factor in rating enhancement from Bankers Assurance S.A.L. (Bankers), which considers Al Ittihad's strategic importance to Nasco Insurance Group Limited (Nasco) as an underwriting platform in the United Arab Emirates (UAE), together with the support provided by Bankers to Al Ittihad. The Long-Term ICR upgrade reflects significant improvement in Al Ittihad's rating fundamentals following the acquisition by Nasco in 2016. Under the stewardship of the new management team, the company has embarked on a clearer strategic path, with management actions translating into improved profitability over 2017 and strengthening of risk management and controls across the operation. The positive outlooks reflect Al Ittihad's strategic direction and ongoing management actions that are expected to translate into sustainable profitability over the medium term, which may impact the company's operating performance assessment positively.

Al Ittihad's risk-adjusted capitalisation, as measured by Best's Capital Adequacy Ratio (BCAR), is considered as very strong. Although it weakened over 2017, in line with expectations as a result of increased underwriting risks and catastrophe exposure, A.M. Best expects Al Ittihad's risk-adjusted capitalisation to remain very strong over the coming years. This follows a revision to Al Ittihad's reinsurance structure in 2018 resulting in a reduction in the company's net probable maximum loss estimates. However, the company's risk-adjusted capitalisation remains sensitive to catastrophe exposure, as a core driver of capital consumption. The balance sheet strength assessment also factors in the compan's highly liquid and conservative investment portfolio, weighted toward cash and deposits domiciled in Lebanon and the UAE.

Al Ittihad has a recent history of poor operating performance stemming from losses arising in Lebanon and adverse loss experience in its Kuwaiti run-off portfolio. However, actions taken by management to rationalise the portfolio and focus on profitable operations in the UAE, resulted in improved performance for the year, with a combined ratio of 95.3% and a return on equity of 11.6% for 2017, compared with five-year averages (2013-2017) of 106.7% and -4.3%, respectively.

Al Ittihad's business profile assessment reflects its market position as a mid-tier player in the highly competitive UAE market, as well as its solid distribution capabilities, leveraging the Nasco group's brokerage network. At the beginning of 2017, the company placed its Lebanese portfolio into run-off in order to focus its ongoing underwriting operations on the UAE. Concurrently, from April 2017, Al Ittihad started underwriting two established portfolios of Nasco agency business, contributing to diversify its business profile. As a result, the company has seen notable non-life growth in excess of 40% during 2017, with gross written premium reaching LBP 107.1 billion (USD 71.1 million), compared with LBP 75.2 billion (USD 50.9 million) in 2016. Further premium growth is anticipated over 2018, as a result of the full transfer of the Nasco agency portfolios to Al Ittihad.

Al Ittihad's ERM assessment reflects steps taken by management to strengthen the risk management and governance framework over 2017. However, A.M. Best considers that the framework is in the early stages of development, and that it will take time for the company to embed it fully in its operations.

This press release relates to Credit Ratings that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best's Credit Ratings. For information on the proper media use of Best's Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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