Fitch Ratings has assigned a National Insurer Financial Strength (IFS) Rating of ‘AA(egy)’ to Egypt’s state-run Misr Insurance Company, with a stable outlook.
The National IFS Rating of ‘AA’ (egy) reflects Misr Insurance’s leading position as the largest insurance company in the Egyptian insurance market, strong capitalisation and financial performance, and prudent investment strategy by local standards, according to Fitch statement.
Misr Insurance’s gross written premiums (GWP) were 9.3 billion Egyptian pounds ($584 million) in 2020, and its GWP share in Egypt was 45 percent in a market with 38 participants. Around 15 percent of its 2020 premiums were written outside of Egypt, comprising 13 percent as inwards reinsurance business and 2 percent through three foreign branches in Qatar, Kuwait, and Dubai.
Fitch views Misr Insurance’s capitalisation positively, supported by a score of ‘very strong’ at end-June-2020 under the agency’s Prism Factor-Based Capital Model.
“Our view of Misr’s capitalisation is supported by its extremely strong regulatory solvency of 1,540% at the same date. Misr also has no financial leverage in its capital structure.” Fitch added in its statement.
Fitch views Misr’s financial performance and earnings as strong, reflecting a five-year average combined ratio of 90 percent. Misr’s five-year average return on equity (ROE) was 16 percent; however, compared with a five-year average inflation rate of 14 percent, it is low in real terms.
Investment income is the main source of profitability for Misr, accounting for 84% of its pre-tax operating earnings in the financial year ended 30 June 2020, and being the sole driver of profitability in 2019 and 2018 when Misr had underwriting losses. The underwriting result is supported by strong combined ratios in lines such as marine cargo and hull, accident, engineering, and oil and gas, which offset losses arising from the aviation, medical and motor comprehensive books.
Fitch considers Misr’s investment strategy to be prudent, albeit highly correlated to the Egyptian economy. Misr’s assets are 52 percent invested in cash and cash equivalents in Egyptian banks, 28 percent in fixed income and 20 percent in equities.
“We assess its invested assets as very liquid, given a high percentage of assets placed in bank deposits.”
“Factors that could, individually or collectively, lead to negative rating action/downgrade:
— Unfavourable changes to the ownership structure for Misr, along with a substantially lower domestic market share and weaker profitability.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
— An upgrade is not possible given Misr’s creditworthiness relative to the sovereign’s.”
CRITERIA VARIATION
“Our Insurance Rating Criteria do not have a ‘neutral’ guideline for Egypt’s reserve adequacy credit factor or a regulatory classification for Egypt.”
The committee applied criteria variations in respect of these two aspects, with an assessment of ‘neutral’ reserve adequacy in the ‘B’ category and a regulatory classification of ‘Other’.
