Moody's Rating

Moody's upgrades Gulf Insurance Group's Egyptian P&C subsidiary, Arab Misr Insurance Group, to Ba3;

Stable outlook

Global Credit Research - 15 Feb 2018

London, 15 February 2018 -- Moody's Investors Service, ("Moody's") has today upgraded to Ba3 from B1 the insurance financial strength rating (IFSR) of Arab Misr Insurance Group (gig) S.A.E ("GIG Egypt"). Based in Cairo, Egypt, GIG Egypt is the main P&C Egyptian subsidiary of Gulf Insurance Group K.S.C.P. ("GIG" or "Group"; A3, Stable). The outlook remains stable.

 

RATINGS RATIONALE

 

The rating upgrade for GIG Egypt reflects our view of the growing importance of the Egyptian operation to GIG in terms of underwriting results as well as closer integration with GIG, resulting in a higher level of support from the Group. Based on preliminary results of 2017, GIG Egypt represented 5% of GIG's premiums but a high 24% of net profit for the Group. Group support is the key factor for having GIG Egypt IFSR three notches above the Egyptian sovereign rating (B3, Stable) as well as above the stand-alone credit profile of the company. In addition to the significant profit contribution to GIG, Moody's notes the strong brand association with the Group as well as the sharing of technical expertise, reflecting the Group's continued commitment to the region. Additionally the reinsurance protection for GIG Egypt is purchased centrally by the Group.

 

GIG Egypt's stand-alone credit profile reflects its top five position in the Egyptian P&C insurance market (top three when excluding state-owned insurer) and a growing brand, good product diversification of non-life products and very good operating profitability. GIG Egypt also continues to show strong organic growth across all client segments with an overall growth rate of 40% in its financial year ended 30 June 2017. In terms of profitability GIG Egypt's performance has been very strong with the 5-year return on capital (ROC) of 29.3% underpinned by a very strong 5-year combined ratio (COR) of 77.7% in the financial year ended in 2017; moreover profitability has been very consistent with a very high sharpe ratio of ROC of 718.4% (which measures the very strong consistency of returns on a 5 year average basis).

 

However, these strengths are somewhat offset by the meaningful direct exposure to Egypt's sovereign risk in terms of investment portfolio and the operating risks inherent in the increasingly competitive Egyptian insurance market. Moody's notes that GIG Egypt's other key credit fundamentals (i.e. asset quality, capitalisation and financial flexibility) are correlated with -- and thus linked to -- the economic and market conditions in Egypt, where it is domiciled and has all its operations. In terms of asset quality, Egyptian government bonds and treasury bills represented around 89% of GIG Egypt's invested assets and along with cash and fixed deposits in local banks the high risk assets (HRA) as percentage of shareholders' equity was 212.6%. Furthermore as 100% of its premiums were sourced in Egypt, Moody's considers GIG Egypt's stand-alone credit profile to be constrained by the credit quality of the Egyptian sovereign, albeit Moody's notes that within the sovereign constraints GIG Egypt has built and maintained good capital and reserve adequacy.

Created 8/10/2016 6:02:52 AM