AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” (Fair) of Arabia Insurance Company – Jordan (AICJ) (Jordan). The outlook of these Credit Ratings (ratings) is negative.

The ratings reflect AICJ’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile, and appropriate enterprise risk management. The ratings also reflect, in the form of lift, AICJ’s strategic importance to its parent company, Arabia Insurance Company s.a.l.

The negative outlooks reflect pressures on AICJ’s balance sheet strength and operating performance, stemming from the uncertainty about the company’s ability to generate sufficient capital organically to support underwriting growth.

AICJ’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which improved to the strong level at year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR), supported by solid internal capital generation. Asset risk remains the primary driver of AICJ’s capital requirements, reflecting its exposure to equities and real estate, as well as its concentration by issuer. The assessment factors in the company’s small capital base, which makes its capital adequacy particularly sensitive to potential volatility, together with its high reinsurance dependence, driven by its significant underwriting exposures.

AICJ has accumulated positive overall earnings over the past five years (2019-2023) and reported an improved return-on-equity ratio of 8.4% in 2023 (2022: -1.9%). The company’s performance has been reliant on strong investment income, which has been bolstered by rising domestic interest rates, as short-term bank deposits comprise over half of AICJ’s invested assets. Challenging underwriting conditions in the Jordanian motor insurance market continue to weigh on the company’s results, with AICJ reporting significant non-life underwriting losses in 2022 and 2021, translating in combined ratios of 109.1% and 112.3%, respectively. While AICJ reported a reduced combined ratio (net/net) of 99.0% in 2023 (2022: 109.1%), reflective of management’s actions to improve technical profitability, AM Best expects earnings to remain constrained by volatility in the company’s motor book.

AICJ has a small market share in Jordan’s fragmented insurance market. The company’s underwriting portfolio is dominated by motor business on a net basis, as other lines of business are heavily reinsured.

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