Although ABNIC has made considerable use of debt funding over recent years, we have noted a gradual reducing trend in borrowings, and the current level of indebtedness is not in itself a particular concern to us.
Elsewhere in our analysis of ABNIC, we have also now applied standard rather than stressed property-related charges in our risk-based capital modelling of ABNIC, and have instead factored into our risk position assessment the insurer's elevated real estate concentration risk.
The stable outlook indicates our view that we are unlikely to change the ratings on ABNIC during the one-year outlook period.
We could raise our ratings on ABNIC if management successfully addresses liquidity and asset concentration concerns by means of real estate sales sufficient to improve liquidity to levels that we can readily view as at least adequate.
In addition to that, ABNIC
is improving its core competencies and enhancing its risk management controls in order to protect the rights of its shareholders and policyholders, Nader T Qaddumi, General Manager of the company, said.
Although the debt and liquidity positions continue to improve gradually as indebtedness reduces, we note that as of the end of March 2016, ABNIC still reported UAE dirham (AED) 415.
We would normally expect an insurer which writes short-tail business--principally motor and medical lines in ABNIC 's case--to hold approximately 100 per cent of liquid assets relative to its net technical reserves.
That said, we acknowledge that this worst-case scenario is unlikely to materialize in practice because ABNIC is currently underwriting its insurance business at a technical profit, with net combined (loss and expense) ratios of claims and expenses relative to retained premium income at about 95 per cent.
Although we regard ABNIC Group's liquidity as good, it has nevertheless weakened,said Standard & Poor's credit analyst Nigel Bond.
ABNIC Group's capitalization has weakened to good from strong because of its weaker, albeit good, capital adequacy on Dec.
Partly offsetting the possible strain on liquidity of these potential short-term liabilities, ABNIC
holds cash and marketable shares of AED 237.
The ratings agency expects ABNIC
Group's net combined ratio to remain very strong at better than 80 per cent in 2011 and 2012, that its investment portfolio will remain heavily exposed to property, the investment leverage ratio will remain at around 160 per cent-170 per cent, and that its capital adequacy will remain at least adequate.