AM Best Revises Outlooks to Stable for Union Insurance Company P.J.S.C.

AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Union Insurance Company P.J.S.C. (Union) (United Arab Emirates).

The Credit Ratings (ratings) reflect Union’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

The revision of the outlooks to stable from negative reflect improvements in Union’s regulatory solvency position, following regulatory breaches in 2021, the result of demonstrated and improved governance controls and risk management practices. The company reported a solvency coverage ratio of 135% following the first nine months of 2023 (Q3 2023), improving from 114% at year-end 2022. AM Best expects the company to manage its capital position prudently to maintain a comfortable buffer above regulatory solvency.

AM Best assesses Union’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR) in 2022, at the strongest level and is expected to remain at this level, prospectively. The balance sheet strength assessment incorporates the company’s reduced exposure to investment risk, following the required write-off of investment properties and management’s de-risking of the equity portfolio with the disposal of a large single equity holding in 2021, with proceeds reinvested largely in cash and deposits. A partially offsetting factor is Union’s high dependence on reinsurance, albeit the associated credit risk is managed through the use of a well-rated reinsurance panel.

Union has a track record of adequate operating performance, with a five-year (2018-2022) weighted average return-on-equity ratio of 4.0%, supported by solid non-life underwriting profitability. The company has recorded a five-year weighted average non-life combined ratio of 94.0% (as calculated by AM Best). Volatile investment returns have affected Union’s operating profitability in the past; however, AM Best expects greater stability in operating results following the de-risking of the asset portfolio.

Union retains its position as a mid-tier composite insurer in the UAE market, where it ranked ninth by gross written premium in 2022 of the 29 listed national insurance companies. Despite a well-balanced distribution network, insurance revenue is concentrated in the highly competitive UAE market, where the company originates approximately 90% of its business. Union’s top line contracted at Q3 2023, the result of exiting from its Omani bancassurance life business and the UAE individual life book of business, which have been loss-making for Union in recent years. The company has outlined several growth opportunities to compensate partially for lost revenue.

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AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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