Global Arab Network | Jordan-Based Middle East Insurance Co. Ratings Lowered Following Sovereign Downgrade

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Jordan-Based Middle East Insurance Co. Ratings Lowered Following Sovereign Downgrade

Global Arab Network - - Mohammed Almasri

Monday, 15 March 2010 17:30

Standard & Poor's Ratings Services said today that it lowered its long-term counterparty credit and insurer financial strength ratings on Jordan-based Middle East Insurance Company (MEICO) to 'BBB-' from 'BBB'. The outlook is stable.

The rating action follows the downgrade on March 12, 2010, of the long-term local currency sovereign credit rating on the Hashemite Kingdom of Jordan (for more information, see "Hashemite Kingdom of Jordan Long-Term LC Rating Lowered To 'BBB-'; Long-Term FC Rating Affirmed At 'BB'; Outlook Stable," published on RatingsDirect).

"In our opinion, a microeconomic analysis of MEICO still reveals good and potentially improving business and financial profiles," said Standard & Poor's credit analyst David Anthony. However, the current increase in economic and industry risks at the wider, macroeconomic level imply a likely short- to medium-term deterioration in the overall operating and investment environment for all insurers and banks active in Jordan, including MEICO.

The stable outlook on MEICO reflects that on the long-term local currency sovereign credit rating on Jordan. "We expect the macroeconomic situation in Jordan to stabilize in the medium term, which will, in its opinion, bring greater stability to the operating environments of the Kingdom's financial institutions," said Mr. Anthony.

In addition to a more stable macroeconomic outlook, S&P also expects to see reasonable stability and possibly some improvement in MEICO's already good commercial and financial profiles. In particular, S&P expects MEICO to maintain its position as one of the leading domestic Jordanian insurers with an approximately 6.5% market share and particular strength in commercial lines business. Year on year, we expect to see low double-digit increases in net premium volumes, and satisfactory underwriting profits reflected in net combined ratios in the low-to-mid 90% range.

S&P also expects to see MEICO continuing to reduce its significant and somewhat opportunistic exposure to equities, allowing the possible realization of some residual investment gains and a further improvement in its already strong liquidity position. Meanwhile S&P expects 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 macroeconomic environment in Jordan, any upward rating action is unlikely in the short term, although S&P does not expect any further significant downward pressures either.

Global Arab Network

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