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ADNIC receives stable AM Best rating

AM Best has assigned a financial strength rating of A-excellent and an issuer credit rating of ‘a’ to Abu Dhabi National Insurance Company, with the outlook on both ratings stable.

The ratings agency said the ratings reflect ADNIC’s “superior risk-adjusted capitalisation, its strong business position in the United Arab Emirates insurance market and robust financial performance”.

AM Best now estimates that ADNIC, the UAE’s second largest insurer, is likely to experience growth rates of 15 per cent-20 per cent annually during the next two years as it continues its expansion of its distribution network and focuses on increasing sales of personal lines of business.

Net premiums are likely to increase by 20 per cent-25 per cent during the same period as the company increases its retention, said the firm.

A statement from AM Best said: “ADNIC has strong and consistent technical performance with combined ratios below 75 per cent. AM Best believes that the company’s combined ratio is likely to increase and stabilise at around 85 per cent to 90 per cent in the medium term.

“AM Best believes that ADNIC’s excellent risk-adjusted capitalisation will be retained despite the increased retention and the resultant increase in capital requirements. Capital and surplus, which had declined in 2008, recovered during the last year and the company benefits from a very strong underwriting leverage of 50 per cent (gross written premiums over capital and surplus).”

However, the change in the company’s methodology of calculating unearned premium reserves (UPR) will have a one-off impact on the claims ratio in 2010, said AM Best.

“Furthermore, the increase in retention is likely to increase the company’s expense ratio, which has typically been negative due to profit commissions. Investment income is likely to remain in single digits given that the largest portion of ADNIC’s invested assets is in cash deposits,” it said

ADNIC is the second-largest insurer in the UAE with an estimated market share of 16 per cent among the local insurers. The company experienced strong growth during 2009 when its premiums grew by 16 per cent, while the market as a whole grew by a more modest 5 per cent.

According to AM Best, the increased growth rates were a result of the introduction of new products and increased sales in medical expenses business.