Dubai: Standard & Poor’s Ratings Services revised its outlook on Dubai-based National General Insurance Co. (NGI) to positive from stable. At the same time, S&P affirmed its long-term counterparty credit and insurer financial strength ratings at ‘BBB+’.
“The outlook revision reflects our view that NGI’s financial risk profile will continue to improve, owing to its strengthening capital and earnings and ongoing sales of high-risk assets. This has led us to revise our assessment of NGI’s financial risk profile to moderately strong from upper adequate, under our criteria. This, in turn, reflects our view of NGI’s strong capital and earnings, moderate risk position, and adequate financial flexibility,” S&P in a statement said.
“We consider NGI’s capital position to be supported by extremely strong capital adequacy and exceptional liquidity, which have reduced NGI’s investment leverage. We have factored in moderate (6%-8%) growth in premiums over the next three years and gradually improving investment returns before realized gains. We also assume NGI’s net combined ratio, the industry’s leading underwriting profitability metric, will stay stable at about 85%-90% over the next three years, the lower the combined ratio, the more profitable, and a ratio of more than 100% signifies an underwriting loss.”
“We expect that NGI will continue to demonstrate low fundamental earnings volatility, arising from its underwriting results and stable investment income on the back of a supportive economic environment and capital markets. However, the periodic realization of capital gains through asset sales can occasionally inflate published earnings, as was the case in 2013. Our view of NGI’s improving financial risk profile is further supported by the gradual planned divestment of some of its high-risk investments, particularly real estate.”
“We have also revised our view of NGI’s liquidity to exceptional from strong as a result of an increasing proportion of liquid assets, strong earnings capacity, and prudent dividend policy.
“Our ratings on the NGI reflect its satisfactory business risk profile and moderately strong financial risk profile. Our ‘bbb+’ stand-alone credit profile (SACP) on NGI is the combination of these factors, together with our assessment of NGI’s satisfactory management, and enterprise risk management (ERM), which we see as adequate.”
“Our assessment of NGI’s insurance industry and country risk is intermediate, reflecting NGI’s exposure to the United Arab Emirates’ market. Our assessment is based on our view of low insurance product risk and intermediate country risk. We also factor in high competition in a fragmented insurance market but supported by good economic prospects. We view the regulatory framework as lagging behind international practice.”
“The positive outlook reflects our expectation that NGI will continue to reduce its capital exposure to market volatility and maintain a stable competitive position. We expect NGI’s de-risking decision to be a long-term commitment toward reducing its susceptibility to market volatility.