Standard & Poor's Ratings Services said today that it assigned its 'BBB' long-term counterparty credit and insurer financial strength ratings to Jordan-based Middle East Insurance Co. of Jordan (MEICO).
"The ratings on MEICO reflect the good business position of the company in its domestic market, as well as its very good financial profile relative to its liabilities and investment risks," said Standard & Poor's credit analyst David Anthony. We expect capitalization and financial flexibility to remain at least good even if, as expected, the company bids to acquire some of its smaller local competitors.
Nevertheless, in our opinion, MEICO may be to some extent dependent on the ongoing availability of external reinsurance support to provide capacity for its good quality, profitable commercial underwriting, and it routinely cedes over half of its total gross premiums to a pool of generally strongly rated reinsurers.
"The company's technical expertise and service quality is particularly recognized in the area of commercial and industrial lines, where it is a leader in marine and transport and also group life, property, liability and, to a more limited extent, group medical," said Mr. Anthony. In the somewhat overcrowded, highly competitive but nonetheless in our view effectively regulated Jordanian domestic market of 28 licensed insurers, MEICO is the country's second-largest insurer by capital, and the fourth-largest by gross premium income (JOD21.8 million), enjoying a 6.5% market share.
"The stable outlook reflects our expectation that MEICO will maintain its good commercial and financial profiles despite the increasing competitive and macro-economic issues that continue to affect many Jordanian insurers," Mr. Anthony added. In particular, we expect MEICO to maintain its position as one of the leading domestic insurers with an approximately 12% year-on-year increase in net premium volumes and sustainable underwriting profits reflected in net combined ratios in, at worst, the low-to-mid 90% range. Overall, we expect satisfactory technical results across all lines combined with some recovery in investment income and values relative to 2008 to lead to return on revenue ratios at around 15%, with return on equity of approximately 10%. Meanwhile, we expect to see some reduction in the company's exposure to equities and property, and also expect capitalization to remain good overall, with at least strong adjusted risk-based capital outcomes, even if small local competitors are periodically acquired.
Given the currently challenging macro-economic environment in Jordan, any upward rating action is unlikely in the short term. Meanwhile, although MEICO's intrinsic business and financial profiles appear both good and stable, any significant increase in the economic and industry risks relating to Jordan could lead to negative pressure on our assessment of the company.
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