Moody's Rating

Moody's assigns B1 IFS rating to Arab Misr Insurance Group, the main Egyptian subsidiary of Gulf Insurance Group; stable outlook

Global Credit Research - 09 Aug 2016

London, 09 August 2016 -- Moody's Investors Service has today assigned a B1 insurance financial strength rating (IFSR) to Arab Misr Insurance Group (gig) S.A.E., the main Egyptian subsidiary of Gulf Insurance Group K.S.C.P. (A3 IFSR, stable). The outlook is stable.

 

RATINGS RATIONALE

 

The B1 IFSR of Arab Misr Insurance Group (AMIG) reflects the good stand-alone financial fundamentals of its operations as well as the support stemming from its parent company, Gulf Insurance Group K.S.C.P. (GIG, A3 IFSR). Group support is one of Moody's key factors for assigning an IFSR two notches above the Egyptian sovereign rating (B3, stable). Moody's views Egypt as a key growth market for GIG in terms of premiums and underwriting results, with Egypt representing already 10% and 15% of GIG's premiums and underwriting results respectively in 2015. Furthermore reinsurance protection purchased by the group includes coverage for AMIG and GIG provides technical expertise to its Egyptian subsidiaries reflecting the group's continued commitment to the region.

 

AMIG's stand-alone credit profile reflects its top five position in the Egyptian insurance market (top two when excluding state-owned insures) and a growing brand, good product diversification of non-life products and very good operating profitability. AMIG also continues to show strong organic growth across all client segments with an overall growth rate of 17% in its financial year ended 30 June 2015. 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.

 

Commenting further on profitability, Moody's added that AMIG's performance has been very strong with the 5-year return on capital of 28.3% underpinned by a very strong 5-year combined ratio of 79.7% in the financial year ended in 2015; moreover profitability has been very consistent with a very high sharpe ratio of return on capital of 628.3% (which measures the very strong consistency of returns on a 5 year average basis). Moody's also expects that AMIG will continue to grow profitably, albeit against a backdrop of volatile economic environment.

 

More negatively, Moody's notes that AMIG'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 84% of AMIG's invested assets and along with cash and fixed deposits in local banks the high risk assets (HRA) as % of shareholders' equity was 207.5%. Moody's notes that the local regulations restrict the ability for AMIG to invest in asset investments outside Egypt. Furthermore as 100% of its premiums were sourced in Egypt, Moody's considers AMIG'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 AMIG has built and maintained good capital and reserve adequacy.

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