AM Best Revises Outlooks to Positive for Union Insurance Company P.J.S.C.

AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of Union Insurance Company P.J.S.C. (Union) (United Arab Emirates).

The Credit Ratings (ratings) reflect Union’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.

The revision of the outlooks to positive from stable reflect the demonstrated improvements in Union’s corporate governance, internal controls, and risk management practices. The company’s management has taken corrective actions in recent years to reduce balance sheet risk and improve regulatory solvency. Following the first nine months of 2024, the company reported a solvency coverage ratio of 161%, improving from 144% at year-end 2023. AM Best expects Union to manage its capital position prudently to maintain a comfortable buffer above regulatory solvency.

Union’s very strong balance sheet strength assessment is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level in 2023 and is expected to remain at this level prospectively. The assessment also incorporates the company’s reduced exposure to investment risk, following management’s de-risking of the equity and real estate portfolios since 2021, with proceeds reinvested largely in cash and deposits. A partially offsetting factor is Union’s high dependence on reinsurance, albeit the associated elevated credit risk is managed through the use of a well-rated reinsurance panel.

Union has a track record of adequate operating performance, generating profits in three of the past five years (2019-2023). Union reported a profit of AED 22.7 million (USD 6.2 million) for the first nine months of 2024, driven by positive underwriting and investment returns, following a loss of AED 2.5 million at year-end 2023. Volatile investment returns have affected Union’s operating profitability in the past; however, positive investment income of AED 6.0 million and AED 17.2 million was reported in 2022 and 2023, respectively. AM Best expects greater stability in operating results following the de-risking of the asset portfolio.

Union retains its position as a mid-tier composite insurer in the UAE market, where in 2023 it ranked 11th by insurance revenue of the listed national insurance companies. Despite a well-balanced distribution network, insurance revenue is concentrated in the highly competitive UAE market, where the company originates more than 90% of its business. Union’s top line contracted in 2023, the result of exiting from its Omani bancassurance life business and its UAE individual life book of business. The company has outlined several growth opportunities to compensate partially for lost revenue.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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