Global credit rating agency AM Best affirmed its B++ (Good) financial strength rating and “bbb” long-term issuer credit rating (Long-Term ICR) on Egypt’s state-owned Misr Insurance Company and kept its stable outlook.
The ratings reflect Misr Insurance’s balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM). The ratings also factor in the financial strength of Misr Insurance Holding Company, due to Misr Insurance Company’s strategic importance to the group.
According to the rating agency, Misr Insurance’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR).
AM Best expects the company’s BCAR scores to remain comfortably above the minimum required for the strongest assessment, supported by good internal capital generation and low underwriting leverage. Despite Misr Insurance’s relatively conservative investment allocation by asset class, AM Best considers the quality of assets to be weak given concentration in Egypt, which exposes the balance sheet to potentially material volatility.
The balance sheet strength assessment also factors in the company’s high dependence on reinsurance and Egypt’s high economic risk, and very high financial system and political risks, AM Best noted.
Misr Insurance has a track record of adequate operating performance, demonstrated by a five-year (2016-2020) weighted average return on equity and combined ratio of 12.8 percent and 95.4 percent (as calculated by AM Best), respectively.
Investment results remain the primary contributor to earnings, supported by the high interest rate environment in Egypt, and accounted for over 90 percent of pre-tax profits over the past five years. Underwriting profits have been volatile in recent years. However, for the financial year ended 30 June 2020 (financial-year 2020), Misr Insurance delivered an improved combined ratio of 92.3 percent (as calculated by AM Best), supported by favourable claims experience on the fire and engineering lines of business.
AM Best also expects prospective operating performance to remain adequate over the cycle, although competitive pressures and declining interest rates in Egypt are expected to exert pressure on margins.
Misr Insurance has an excellent business position in its domestic market. The company’s gross written premium increased by 3.9 percent during financial-year 2020 to 9.3 billion Egyptian pounds ($579.3 million), supporting its market-leading position in Egypt’s non-life insurance sector with a market share of approximately 50 percent.
Whilst business is concentrated in Egypt, Misr Insurance benefits from a modest level of geographical diversification stemming from its regional inwards facultative business, which accounted for approximately 13 percent of financial-year 2020 premium revenue.
The company has taken steps to implement tools to reliably manage its risk exposures and formalise its risk management framework in recent years. The ERM assessment takes into account AM Best expectation that Misr Insurance will continue to develop and integrate its risk management framework to adapt to the evolving risk landscape.
