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Rating Action:

Moody's upgrades Gulf Insurance Group's Egyptian P&C subsidiary, Arab Misr Insurance Group, to Ba2; stable outlook

 The document has been translated in other languages

23 April 2019


DIFC - Dubai , April 23, 2019 – Moody's Investors Service has today upgraded to Ba2 from Ba3 the insurance financial strength rating (IFSR) of Arab Misr Insurance Group (gig) S.A.E ("GIG Egypt") and changed the outlook to stable from positive. Based in Cairo, Egypt, GIG Egypt is the main P&C Egyptian subsidiary of Gulf Insurance Group K.S.C.P. ("GIG" or "Group"; A3, Stable). All the other ratings of the GIG Group are unaffected by this rating action.

The rating action is prompted by the upgrade of the senior unsecured bond rating of the Government of Egypt to B2 from B3 with a change in outlook to stable from positive. For further information on the sovereign rating action, please refer to Moody's press release dated 17 April 2019 (Moody's upgrades Egypt's rating to B2, stable outlook; https://www.moodys.com/research/--PR_398635 ).

RATINGS RATIONALE

The upgrade to Ba2 from Ba3 and change in outlook to stable from positive for GIG Egypt reflects the similar upgrade to B2 for the government bond rating of Egypt and change in outlook to stable from positive on 17 April 2019. Moody's upgraded B2 government bond rating of Egypt, reflects (i) Moody's expectation that ongoing fiscal and economic reforms will support a gradual but steady improvement in Egypt's fiscal metrics and raise real GDP growth; (ii) Moody's increasing confidence that factors such as Egypt's large domestic funding base support its resilience to refinancing shocks notwithstanding the government's very high borrowing needs and interest costs.

GIG Egypt's stand-alone credit profile reflects its top three position in the Egyptian P&C insurance market and a growing brand, good product diversification of non-life products and very good operating profitability. GIG Egypt also continues to show strong organic growth across all client segments with an overall growth rate of 29% in its financial year ended 30 June 2018. In terms of profitability GIG Egypt's performance has been very strong with the 5-year return on capital (ROC) of 30% underpinned by a very strong 5-year combined ratio (COR) of 79.6% in the financial year ended in 2018; moreover profitability has been very consistent with a very high sharpe ratio of ROC of 855.6% (which measures the very strong consistency of returns on a 5 year average basis).

However, GIG Egypt's stand-alone credit profile, and its published Ba2 IFSR, remain constrained 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. Moody's notes that GIG Egypt'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. As a result the upgrade of the Egyptian sovereign senior unsecured bond rating to B2 from B3 and change in outlook to stable from positive supports a similar upgrade and change in outlook at GIG Egypt.

GIG Egypt's Ba2 IFSR continues to reflect Moody's view of the implicit support coming from the GIG Group, enabling the positioning of GIG Egypt's IFSR three notches above the Egyptian sovereign rating (B2, Stable) as well as above the stand-alone credit profile of the company. In addition to the significant profit contribution to GIG, Moody's notes the strong brand association with the Group as well as the sharing of technical expertise, reflecting the Group's continued commitment to the region. Additionally the reinsurance protection for GIG Egypt is purchased centrally by the Group.

OUTLOOK

The stable outlook for GIG Egypt mirrors the macro economic progress of the Egyptian sovereign rating and its outlook. The macro economic progress will aid GIG Egypt's credit profile whilst it maintains its growing and already strong market position and brand whilst delivering strong results.

According to Moody's, the rating could be upgraded if (i) there is an upgrade of the sovereign rating of Egypt; and/or (ii) GIG Egypt is able to invest in higher credit quality assets resulting in a high risk assets (HRA) percentage of shareholders' equity of below 175%.

Conversely, the rating may be downgraded if (i) the B2 government bond rating of Egypt is downgraded; and/or (ii) GIG Egypt 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.

AFFECTED RATINGS

..Issuer: Arab Misr Insurance Group (gig) S.A.E

Upgrade:

....Insurance Financial Strength, Upgraded to Ba2 from Ba3

Outlook Action:

....Outlook changed to Stable from Positive

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Property and Casualty Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Mohammed Ali Londe
AVP-Analyst
Financial Institutions Group
Moody's Investors Service Middle East Limited
Regulated by the DFSA
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
UAE
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

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

Releasing Office :
Moody's Investors Service Middle East Limited
Regulated by the DFSA
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
UAE
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

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