October 17, 2017 / 12:48 PM / 8 months ago

Fitch Rates The Company for Cooperative Insurance IFS 'A'; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 17 (Fitch) Fitch Ratings has assigned The Company for Cooperative Insurance (Tawuniya) an Insurer Financial Strength (IFS) Rating of 'A' (Strong). The Rating Outlook is Stable. KEY RATING DRIVERS The ratings of Tawuniya reflect its strong business profile in the Saudi Arabian insurance market and its strong capitalisation along with its strong financial performance and earnings . Tawuniya has a strong business profile as one of the leading insurance companies in Saudi Arabia and the largest insurer as measured by premium volumes. With gross written premiums (GWP) of over SAR8 billion in 2016, it has a market share of 22%. The insurer has a strong competitive position in the local market, benefiting from a recognised brand as well as the largest distribution network of tied agents in Saudi Arabia. Tawuniya's strong capitalisation is reflected in Fitch's Prism Factor Based Model (FBM) score of 'Strong' at end-2016 (2015: 'Adequate'). The improvement was driven by an increase in equity as a result of increasing retained earnings as well as a change in asset allocation, which saw a substantial increase in cash deposits and a decrease in equity investments. On the other hand, a qualitative offset to the overall capital score achieved is the high proportion of unrated assets in the fixed-income portfolio. The Fitch-calculated combined ratio improved to 90% in 2016 (2015: 92%), mainly due to a decrease in the expense ratio driven by an increase in net written premium, while maintaining the same underlying cost base. Tawuniya's net income increased to SAR733 million in 2016 (2015: SAR598 million), supported by strong underwriting profitability. Fitch expects Tawuniya to maintain strong profitability, with a combined ratio in the low- to mid-90% range. The majority of Tawuniya's fixed income portfolio is unrated, which could expose the insurer's capital to significant risk; however, the agency recognises the strong regulatory oversight on invested assets from the Saudi Arabia Monetary Authority (SAMA). At end-2016, the unrated fixed-income portfolio accounted for 151% of total shareholders' funds. Tawuniya identified reserve deficiencies of SAR274 million in 2013 (2014: SAR42 million) following significant market wide reserve strengthening in 2013, on both medical and motor business, in compliance with the regulatory requirement to use accurate actuarial modelling techniques to price policies. More recently, Tawuniya's reserves have been running off in line with best-estimate expectations. Tawuniya is the second-largest medical insurer in Saudi Arabia with an estimated 28% market share and the third-largest in motor where it has 14% of the market. Over 53% of Tawuniya's shares are free float and listed on Saudi Stock Exchange, Tadawul. The remaining 47% is owned by General Organisation for Insurance (GOSI) and Public Pension Agency (PPA) which are government-owned entities. The ownership structure is not expected to change materially. RATING SENSITIVITIES A decline in capitalisation, as measured by Fitch's Prism FBM model, to a level below 'Strong' could lead to a downgrade. Deterioration of underwriting profitability, reflected in a combined ratio consistently above 100%, or a return on equity consistently below 9% could also lead to a downgrade. Fitch believes that an upgrade is unlikely given the company's limited diversification by product line and geography. Contact: Primary Analyst Graham Coutts Director +44 20 3530 1654 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Panagiotis Toskas Analyst +44 20 3530 1667 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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