A.M. Best Europe – Rating Services Limited has downgraded the issuer credit rating (ICR) to “bbb" from “bbb+" and affirmed the financial strength rating (FSR) of B++ (Good) of Arab Misr Insurance Group S.A.E. (AMIG) (Egypt). The outlook for both ratings has been revised to negative from stable. The downgrading of the ICR of AMIG reflects A.M. Best's view of the increased financial and political risks associated with Egypt as indicated by the country's reclassification from CRT-4 to CRT-5, and AMIG's increased exposure to Egyptian sovereign debt, albeit largely short term. Despite the difficult operating environment, AMIG's financial position remains sound given its strong risk-adjusted capitalisation as measured by Best's Capital Adequacy Ratio (BCAR) and its continuing sound technical performance. Furthermore, the company has continued to improve its domestic franchise, now ranking as Egypt's third-largest insurer by premiums. These factors, combined with the results of A.M. Best's stress tests for a sovereign default, support A.M. Best's decision to maintain secure ratings on AMIG. Furthermore, the ratings benefit from the implied support of AMIG's parent, Gulf Insurance Company K.S.C. (GIC). The outlook for both the ICR and FSR has been revised to reflect the ongoing financial and political uncertainty in Egypt. In A.M. Best's opinion, AMIG's risk-adjusted capital position has been improving in recent years through the full retention of profits, which has outpaced capital consumption on a risk-adjusted basis. However, AMIG's investment portfolio is a source of concern, particularly given that the increased sovereign debt exposure followed A.M. Best's downgrading of the risk tier of Egypt and has coincided with the negative pressure on the creditworthiness of Egypt's sovereign debt. A.M. Best's stress tests indicate that the company would be able to withstand a haircut of 40% on its sovereign debt exposure whilst still maintaining a secure level of risk-adjusted capitalisation, which A.M. Best considers a testament to AMIG's current capital position. Under the new management team, AMIG's performance over the last three years has experienced a marked improvement, with its combined ratio averaging just over 90%. Furthermore, the company has achieved growth despite the stagnant conditions in the market whilst also maintaining sound technical profits and now ranks as the third-largest insurer in Egypt. AMIG benefits from the support of GIC, which has begun to implement a group-wide enterprise risk management framework. Furthermore, the centralisation of some departmental functions, the brand harmonisation project and the group-wide reinsurance treaty that has been negotiated by GIC, all support A.M. Best's opinion that parental support is likely to be forthcoming in the event of a crisis. A.M. Best is currently monitoring the economic and political situation in Egypt carefully and expects such external factors to be the likely drivers of any future rating movements, both negative and positiv
