AM Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "bb" (Fair) of Adamjee Insurance Company Limited (Adamjee) (Pakistan). The outlook of these Credit Ratings (ratings) is negative.
The ratings reflect Adamjee's balance sheet strength, which AM Best assesses as strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
The negative outlooks reflect pressure on the company's non-life underwriting performance in recent years. Whilst Adamjee has a history of robust operating profitability, with profits before tax ranging from PKR 2.2 billion to PKR 5.1 billion between 2019 and 2023, consolidated operating performance has been increasingly supported by higher profits generated by the company's life subsidiary in recent years. Investment income remained the largest contributor to earnings, accounting for approximately 80% of total profits over the past five years. Non-life underwriting performance was impacted by losses stemming from its United Arab Emirates motor portfolio in 2023, resulting in a combined ratio of 106.0%. Higher market rates and corrective underwriting measures are expected to improve the performance of the UAE business by the end of 2024.
Adamjee's balance sheet strength assessment is underpinned by its risk-adjusted capitalisation at the strong level, as measured by Best's Capital Adequacy Ratio (BCAR). Future growth of the company's underwriting portfolio is expected to be supported adequately by internal capital generation. Investment risk remains the principal driver of required capital, with the investment portfolio highly concentrated in equity securities and affiliated investments in Pakistan. Whilst some diversification is achieved through term deposit holdings in the UAE, this exposes Adamjee to potential capital volatility. Offsetting balance sheet factors include Adamjee's increasing dependence on reinsurance and its exposure to non-rated reinsurance recoverables through mandatory cessions to the state-owned reinsurer in Pakistan.
Adamjee maintains a good competitive position in Pakistan, as the country's second-largest non-life insurer, with strong positions in infrastructure and industrial risks. The company writes a diversified non-life portfolio, offering conventional and takaful products, as well as life products domestically. In addition, Adamjee generated close to 30% of its non-life premium income through branch operations in the UAE in 2023.
The ERM assessment is viewed as appropriate given the size and complexity of Adamjee's operations. The risk profile of operating in Pakistan presents exposure to very high levels of economic, political and financial system risks, but the company has adequately navigated the operating environment in recent years. Exposure to Pakistan is partially mitigated through Adamjee's branch operations in the UAE, which provides diversification in a more-stable environment.
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Contacts:
Charlotte Vigier
Senior Financial Analyst
+44 20 7397 0270
charlotte.vigier@ambest.com
Christopher Sharkey
Associate Director, Public Relations
+1 908 882 2310
christopher.sharkey@ambest.com
Mahesh Mistry
Senior Director, Analytics
+44 20 7397 0325
mahesh.mistry@ambest.com
Al Slavin
Senior Public Relations Specialist
+1 908 882 2318
al.slavin@ambest.com
