AM Best has assigned a financial strength rating of B- (Fair) and a long-term issuer credit rating of “bb-” to Suez Canal Insurance (SCI). The rating agency assigned SCI's outlook as stable. The ratings reflect the Egyptian company's balance sheet strength, which AM Best categorises 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 risk-adjusted capitalisation at the very strong level, as measured by Best's Capital Adequacy Ratio (BCAR), for the financial year ended June 2019. "Capital consumption is driven largely by asset risk arising from the company's concentrated investment portfolio, which is weighted toward domestic fixed income securities and real estate. The balance sheet strength assessment also factors in the company's solid liquidity to cover net technical provisions." AM Best said in a statement. "A partially offsetting factor is SCI's high dependence on reinsurance, although the associated credit risk is managed largely through the use of a stable reinsurance panel of good credit quality." SCI's operating performance is assessed as adequate, reflective of a five-year (2015-2019) weighted average return on equity (ROE) of 14.9 percent, the rating agency added. "While the company's ROEs have been good, they should be viewed in the context of Egypt's price inflation, which has averaged 15.5 percent over the same period. The majority of the company's operating profits can be attributed to strong investment income, indicative of SCI's elevated asset leverage and Egypt's high interest rate environment." SCI's historical underwriting performance has been modest, with a five-year weighted average combined ratio of 103.0 percent, AM Best said. However, following corrective actions by management, the company's combined ratio has trended downward, reaching 100.0 percent for the financial year 2019, down from a high of 107.5 percent in 2015. AM Best said it expects prospective underwriting performance to continue to improve as SCI implements strategic initiatives, including changes to its reinsurance structure and an increased focus on underwriting discipline and profitable growth. The business profile assessment reflects SCI's position as the one of the largest private sector insurers in Egypt's insurance market by net written premium, with a non-life market share of approximately 5 percent at year-end 2019. However, the company's profile is limited to operating within Egypt, and, on a net premium basis, its portfolio is concentrated heavily toward the motor business line. "The company historically operated basic risk management practices; however, in recent years, SCI has undertaken steps to establish and formalise an enterprisewide risk-aware culture." AM Best expects that further improvements in SCI's ERM framework and practices, if implemented successfully, will allow the company to reliably manage its risk exposures.
