The AM Best insurance rating company has affirmed the financial strength rating of A- of Egypt’s Al-Chark Insurance Company and assigned it a negative outlook. The affirmation reflects the company's excellent, albeit reduced risk-adjusted capitalization, robust operating performance and prominent business position.
The negative outlook reflects the challenges associated with the company's restructuring ahead of its intended privatization and the competitive operating environment.
Al-Chark maintains risk-adjusted capital commensurate with its rating level. However AM Best believes the company's increased position in unlisted investments and the effect of the increased country risk could impact the capital base.
Al-Chark reported strong earnings in 2001 as profits increased marginally to 89.5 million Egyptian pounds ($19.3 million) during the year. Adjusted return on equity was consistent with prior year returns at 13.7 percent in 2001; however, the company was reliant on higher gains on the investment portfolio to offset the non-life underwriting deficit and 108.3 percent combined ratio.
Al-Chark maintains a prominent profile in the Egyptian market as the leading life and second-largest non-life insurer. The company has a strong brand and distribution network, which has enabled it to maintain a market share of approximately 27 percent despite an EP 19.1 million ($4.2 million) fall in non-life premium at year-end 2001. The portfolio is extremely well diversified but lacks geographic diversity outside Egypt.
Management has initiated a structural review and early retirement program to reduce the company's expense ratio, which has averaged 51 percent over the last five years and is one of the highest in the market. Although lowered, staffing levels remain high, and in the context of an increasingly competitive operating environment, AM Best believes that the company will be required to operate with much lower margins going forward.
AM Best does not anticipate any significant liquidity or credit issues to arise given the diversification of the company's investment portfolio and conservative concentration limits; however, risk-adjusted capital will be in the lower end of the current range.
The company will retain its position as one of the leading domestic providers of direct life and non-life insurance. Operating performance will be consistent with prior years, with strong investment returns offsetting losses in the underwriting account. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
