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Rating Action:

Moody's assigns B1 IFS rating to Arab Misr Insurance Group, the main Egyptian subsidiary of Gulf Insurance Group; stable outlook

Global Credit Research - 09 Aug 2016

London, 09 August 2016 -- Moody's Investors Service has today assigned a B1 insurance financial strength rating (IFSR) to Arab Misr Insurance Group (gig) S.A.E., the main Egyptian subsidiary of Gulf Insurance Group K.S.C.P. (A3 IFSR, stable). The outlook is stable.

RATINGS RATIONALE

The B1 IFSR of Arab Misr Insurance Group (AMIG) reflects the good stand-alone financial fundamentals of its operations as well as the support stemming from its parent company, Gulf Insurance Group K.S.C.P. (GIG, A3 IFSR). Group support is one of Moody's key factors for assigning an IFSR two notches above the Egyptian sovereign rating (B3, stable). Moody's views Egypt as a key growth market for GIG in terms of premiums and underwriting results, with Egypt representing already 10% and 15% of GIG's premiums and underwriting results respectively in 2015. Furthermore reinsurance protection purchased by the group includes coverage for AMIG and GIG provides technical expertise to its Egyptian subsidiaries reflecting the group's continued commitment to the region.

AMIG's stand-alone credit profile reflects its top five position in the Egyptian insurance market (top two when excluding state-owned insures) and a growing brand, good product diversification of non-life products and very good operating profitability. AMIG also continues to show strong organic growth across all client segments with an overall growth rate of 17% in its financial year ended 30 June 2015. However, these strengths are somewhat offset by the meaningful direct exposure to Egypt's sovereign risk in terms of investment portfolio and the operating risks inherent in the increasingly competitive Egyptian insurance market.

Commenting further on profitability, Moody's added that AMIG's performance has been very strong with the 5-year return on capital of 28.3% underpinned by a very strong 5-year combined ratio of 79.7% in the financial year ended in 2015; moreover profitability has been very consistent with a very high sharpe ratio of return on capital of 628.3% (which measures the very strong consistency of returns on a 5 year average basis). Moody's also expects that AMIG will continue to grow profitably, albeit against a backdrop of volatile economic environment.

More negatively, Moody's notes that AMIG's other key credit fundamentals (i.e. asset quality, capitalisation and financial flexibility) are correlated with -- and thus linked to -- the economic and market conditions in Egypt, where it is domiciled and has all its operations. In terms of asset quality, Egyptian government bonds and treasury bills represented around 84% of AMIG's invested assets and along with cash and fixed deposits in local banks the high risk assets (HRA) as % of shareholders' equity was 207.5%. Moody's notes that the local regulations restrict the ability for AMIG to invest in asset investments outside Egypt. Furthermore as 100% of its premiums were sourced in Egypt, Moody's considers AMIG's stand-alone credit profile to be constrained by the credit quality of the Egyptian sovereign, albeit Moody's notes that within the sovereign constraints AMIG has built and maintained good capital and reserve adequacy.

OUTLOOK AND RATING DRIVERS

The stable outlook on AMIG reflects our expectation that it will maintain its growing and already strong market position and brand whilst delivering strong results.

According to Moody's, AMIG's rating could be upgraded if (i) there is an upgrade of the sovereign rating of Egypt; and/or (ii) AMIG is able to invest in higher credit quality assets resulting in a HRA % of shareholders' equity of below 175% ; and/or (iii) there is evidence of a stronger degree of operational and financial integration with GIG (e.g. including establishment of intercompany reinsurance and other forms of explicit support)

Conversely, the rating could come under negative pressure if (i) there is a downgrade of the sovereign rating of Egypt; and/or (ii) AMIG starts to lose market share and position; and/or (iii) there is deterioration in profitability with COR consistently above 100% or ROC below 5%; and/or (iv) there is a reduction in the support from GIG.

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Global Property and Casualty Insurers published in June 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

The following rating was assigned:

Arab Misr Insurance Group (gig) S.A.E.: Insurance Financial Strength Rating of B1

The outlook is stable

Local Market analyst for this rating is Mohammed Ali Riyazuddin Londe, +971.4.237.9503.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Helena Kingsley-Tomkins
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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