Middle East Insurance Company retains stable credit ratings at AM Best

Investing.com -- The credit ratings of Middle East Insurance Company Plc (MEICO) (Jordan) have been reaffirmed by AM Best. The Financial Strength Rating remains at B (Fair), and the Long-Term Issuer Credit Rating at “bb+” (Fair). The outlook for these ratings continues to be stable.

The ratings are indicative of MEICO’s balance sheet strength, which AM Best evaluates as strong. The ratings also consider MEICO’s adequate operating performance, limited business profile, and suitable enterprise risk management.

MEICO’s balance sheet strength is supported by its risk-adjusted capitalization, which is at a strong level as determined by Best’s Capital Adequacy Ratio (BCAR). However, concentration in MEICO’s equity and real estate portfolios still significantly influence capital requirements. The balance sheet strength assessment also takes into account MEICO’s unleveraged balance sheet, adequate liquidity, sound reserving practices, and moderate underwriting leverage. The influence of MEICO’s parent company, Middle East Holding Company Plc (MEHC), is viewed as neutral, reflecting MEHC’s strong level of risk-adjusted capitalization, measured by BCAR, with solvency drivers similar to MEICO’s.

MEICO has demonstrated a history of modest operating profitability, with return-on-equity ratios of about 3% over the past five years (2019-2023). However, underwriting performance has been negatively affected by the unprofitable motor third party liability (MTPL) line of business in the Jordanian market, resulting in modest overall technical losses for MEICO since 2021. Despite these challenges, MEICO has maintained underwriting discipline in business lines where it controls rates, leading to a steady improvement in underwriting results since 2022. Despite some fluctuation, investment performance has positively contributed to MEICO’s operating results, with a five-year (2019-2023) weighted average net investment return (including gains) of 2.8%, which has more than compensated for modest underwriting losses in recent years. It is anticipated that MEICO’s operating performance will continue to be modest, negatively affected by technical losses on the compulsory MTPL line of business.

MEICO has positioned itself as a top-five player in Jordan’s highly competitive and fragmented insurance market. While the company’s business is well-diversified by line of business on a gross basis, it is highly concentrated in the motor line on a net basis. The 10.6% growth in insurance services revenue in 2023 was mostly driven by the reallocation of MTPL insurance business to incumbent insurers following the exit of some insurers from the market. Looking ahead, premium growth is expected to be modest.

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