The AM Best insurance rating company has lowered the financial strength rating to A- from A of Misr Insurance Company, Egypt. The rating action reflects the company's weakened risk-adjusted capitalization given its sizeable equity position and the effect of AM Best's evaluation of country risk.
AM Best continues to recognize the company's leading position in the Egyptian market and its excellent operating performance. The outlook is stable. AM Best believes that risk-adjusted capital is subject to a significant degree of investment risk due to the company's constructive role in the long-term economic development of Egypt and therefore sizeable position in unlisted and listed equities.
Although AM Best recognizes the company's conservative concentration limits and access to other liquid assets, it is concerned about the credit and liquidity risk associated with these investments, which is heightened by the country risk. In addition, the strong premium growth projected in 2003 could become a strain on capital.
Based on preliminary figures for year-end 2002, AM Best expects Misr to consolidate its 30 percent market share due to a strong 16.6 percent growth in gross premiums to 894.6 million Egyptian pounds ($193.2 million), particularly within the aviation and energy accounts.
Notwithstanding the liberalization of the market, Misr has maintained its dominant business position--leader in the non-life market, second-largest in the life market--through offering significant gross underwriting capacity and technical expertise in specialist lines, combined with its excellent distribution capabilities. This is partially offset by the company's dependence on the Egyptian market for business.
Net profit for year ended June 30, 2002, has increased 11 percent to EP 203.1 million ($43.9 million) despite a 20 point deterioration in the loss ratio to 65 percent, attributable to prior year reserve releases in 2001 rather than adverse underwriting performance in 2002.
The company has achieved a five-year average combined ratio of 47.7 percent through selective underwriting, conservative retention levels and efficient expense structure, which is reflected by the 20 percent expense ratio in 2002. Adjusted return on equity increased to 15.4 percent in 2002, as the company continued to achieve a favorable investment return of 7.7 percent in 2002 despite falling equity markets and a depressed economy. — (menareport.com)
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