DUBAI: Insurance sector rating agency, AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Dubai Insurance Company (PSC) (DIC).

The outlook of these Credit Ratings is stable. The ratings reflect DIC’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

DIC’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, with Best’s Capital Adequacy Ratio (BCAR) scores expected to remain comfortably in excess of 50% at the 99.6% confidence level, supported by strong organic capital generation. The assessment factors in the company’s strong liquidity and prudent reserving, which incorporates buffers over the actuarial best estimate.

An offsetting factor is the heightened potential volatility that shareholders’ equity is subject to as a result of DIC’s equity holdings, although the company maintains adequate capital buffer to absorb these fluctuations. The balance sheet strength assessment also considers DIC’s high dependence on reinsurance as evidenced by a retention ratio of 13.5% in 2019. The associated counterparty credit risk is mitigated partially by the use of a strong reinsurance panel.

DIC has enhanced its market position successfully in a highly competitive market without compromising technical profitability in recent years. In 2019, DIC grew its gross written premium (GWP) by 82.5% to AED 970.5 million, benefiting from the introduction of Ministry of Human Resources and Emiratisation (MOHRE) product in October 2018, for which DIC is the consortium leader.

Historically, DIC’s business mix was concentrated primarily in motor and medical lines, consistent with other domestic market participants. The introduction of the Worker Protection Program for the MOHRE and across several Free Zones, which accounted for approximately 51% of 2019 GWP, led to additional diversification in the company’s product offering, with motor and medical lines of business remaining material contributors to revenues.

The company has a track record of strong operating performance as demonstrated by an excellent five-year (2015-2019) weighted average AM Best calculated combined ratio and return on equity (ROE) of 76.0% and 9.6%, respectively. DIC reported a technical profit of AED 68.2 million in 2019, equating to an ROE of 14.9%, compared with AED 43.2 million in 2018.

The MOHRE product has contributed positively to the company’s technical earnings, albeit all lines were profitable during the year. DIC’s performance benefits from significant inward reinsurance commissions. AM Best expects prospective underwriting performance to remain strong, although exposure to equities could introduce some volatility in total comprehensive income.