LONDON–(BUSINESS WIRE)–AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” of Life Insurance Corporation (International) B.S.C. (c) (LICI) (Bahrain). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect LICI’s balance sheet strength, which AM Best categorises as adequate, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM).
The negative outlooks principally reflect the pressures on LICI’s balance sheet strength and ERM assessments, primarily stemming from the ongoing breach of the company’s regulatory solvency requirement in the United Arab Emirates (UAE).
LICI’s balance sheet strength assessment of adequate is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which strengthened materially over 2019 to a very strong level from a very weak level in 2018, driven by an increase in available capital due to capital gains of BHD 11.6 million during the year. AM Best expects LICI’s risk-adjusted capitalisation to remain at the same level in 2020 despite financial market volatility, as a result of a rebound in markets since the first quarter of the year. Offsetting factors to LICI’s balance sheet strength assessment include significant volatility in the company’s capital adequacy, which is highly sensitive to financial markets, as well as concerns over the adequacy of the asset-liability management. Furthermore, LICI remains in breach of its regulatory solvency requirements for its branch in the UAE.
LICI has a track record of adequate but volatile operating performance historically, with a positive, albeit low, five-year average return on equity (ROE) of 1% (2015-2019). The five-year average ROE is skewed heavily by an after-tax loss of BHD 14.2 million incurred in 2018, primarily caused by a downturn in financial markets coupled with bonuses credited to policyholders, which translated into an ROE of -28% for the year. LICI’s performance improved in 2019, albeit with a small loss of BHD 0.2 million, benefiting from favourable investment markets and a reduction in crediting rates. AM Best expects LICI’s prospective performance to revert in line with historical averages, remaining supportive of its adequate assessment over the cycle.
LICI benefits from a niche market position, targeting the Indian expatriate community in the Gulf Cooperation Council (GCC) states by leveraging its parent’s, Life Insurance Corporation of India, strong brand in the region, as well as the portability of its policies back to India.
LICI’s ERM framework is developing but weaknesses persist, with the company appearing to have a reactive rather than proactive approach to managing its risks, particularly evidenced in the area of capital management.
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