The AM Best insurance rating company has affirmed the financial strength rating of B++ of the Egyptian Reinsurance Company (Egypt Re).
The affirmation reflects the maintenance of excellent risk-adjusted capital adequacy and improved portfolio diversification; however, weak underwriting performance continues to exert downward pressure on earnings. The outlook is stable.
Risk-adjusted capital is considered excellent and continues to benefit from strong earnings retention. Adjusted capital has increased consistently by 9.4 percent on a five-year compound annual basis to 768.1 million Egyptian pounds ($165.9 million) in 2002.
Operating leverage is marginal. AM Best believes there is potential for reserve deficiency in third-party motor business due to adverse market-wide trends. However, any reserve strengthening is likely to be a gradual process and is not expected to impact the current rating level.
Gross premiums increased by four percent in 2002 to EP 358.8 million ($77.5 million) due to a 49 percent growth in the non-compulsory Egyptian and international portfolios. AM Best expects comparative growth in 2003 as Egypt Re continues to leverage its long-established relationships in the domestic and regional markets to negotiate larger lines on its clients' existing proportional treaties.
Significantly, the company has extended coverage to non-proportional lines in 2002 and after quoting several programs, has taken a lead position on several placements in the market. AM Best views as positive the company's transition during the deregulation of the market--Egypt Re has maintained approximately a 36 percent share of all premium ceded in Egypt in 2002--and is progressing towards its goal of becoming a leading reinsurer in the Arab region.
Net income is expected to fall by a further EP 10 million ($2.1 million) in 2003 to approximately EP 50 million. Strong, although declining, earnings have been dependent upon robust investment income to offset weak underwriting performance in the last three years as a result of the sustained low rating environment and continued adverse performance of certain classes.
Although pricing remained flat for the majority of classes at renewal 2003, there was a substantial correction in renewing large international energy risks; AM Best expects a minimum 10 percent improvement in the 2003 loss ratio. Whilst the long tail on discontinued third-party motor business is expected to represent a drag on underwriting performance going forward, lower interest rates and investment returns will place greater emphasis on more disciplined underwriting. This will be a key focus of the rating going forward. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
