A.M. Best has affirmed the financial strength rating of B++ (Good) and issuer credit rating of "bbb" of Egypt's Arab Misr Insurance Group (GIG-Egypt) (Egypt). The outlook for both ratings remains negative. According to a recent report by A.M. Best, the ratings of GIG-Egypt reflect its strong risk-adjusted capitalisation, good track record of profitability and its sound domestic franchise. The negative outlook reflects the heightened level of economic, political and financial system risk associated with Egypt. GIG-Egypt's rating benefits from the financial strength of its parent company, Gulf Insurance Group K.S.C.P., and its strategic importance to the group. GIG-Egypt's risk-adjusted capitalisation is strong and continues to strengthen as profit retention outpaces growth in capital requirements. Despite GIG-Egypt's material exposure to Egyptian assets, particularly government treasury bills, the company's risk-adjusted capitalisation is sufficiently strong to absorb the higher risk charges for these concentrated assets. GIG-Egypt continues to produce robust technical performance despite the challenging economic backdrop and intense competition from domestic market participants. The company has generated strong combined ratios below 90% in each of the last five years. In 2013, the combined ratio rose to 85% resulting from higher acquisition costs and a lower profit margin on motor business. Underwriting performance has been supported by stable returns on investments, yielding approximately 10% over the last two years. GIG-Egypt remains a leading non-life company among the private insurers in Egypt, producing gross revenues of EGP 345 million (USD 49 million) in 2013. GIG-Egypt's business is generated locally, and its investment portfolio is highly concentrated in Egyptian government debt. Whilst the latter is of particular concern, A.M. Best notes that the maturity of the fixed income investments is less than 12 months for the vast majority of the portfolio. The developments of the economic and political environments in Egypt are likely to be the main drivers of any future rating movements, either negative or positive.
