AM Best Affirms Credit Ratings of Suez Canal Insurance
AM Best has 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 outlook of these Credit Ratings (ratings) is stable.
The 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).
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 2021 (FY 2021). Capital consumption is driven primarily by the company's investment portfolio, which is weighted toward Egyptian fixed income securities and real estate. An offsetting factor is the company's relatively high reliance on reinsurance, as evidenced by a retention ratio of 53.7% in FY 2021. The associated credit risk is mitigated partially by the use of a financially strong reinsurance panel. The balance sheet strength assessment also considers SCI's exposure to the high levels of economic, political, and very high level of financial system risks that are associated with operating in Egypt.
AM Best assesses SCI's operating performance as adequate reflecting the company's solid overall earnings over recent years, as demonstrated by a five-year (FY 2017 - FY 2021) weighted average return on equity (ROE) of 15.4%. Whilst the company's ROEs have been good, they should be viewed in the context of the relatively high interest rate environment in Egypt. Given high interest rates, overall earnings remain skewed toward investment income, which have accounted for the overwhelming majority of pre-tax profits over the past five years. SCI's underwriting portfolio has been marginally loss making, evidenced by a five-year weighted average combined ratio of102.8%. Technical results have been constrained by SCI's very high expense ratio, which remained above 52.0% in each of the past five years.
The business profile assessment reflects SCI's position as a mid-tier insurer in Egypt, with a non-life market share of approximately 5% at FY 2021. 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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