JEDDAH, 25 May 2006 — Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on The National Company for Cooperative Insurance (NCCI) of Saudi Arabia to “A” from “A-”. The outlook is stable.
NCCI, the largest insurer in Saudi Arabia with a 32-percent market share, was established in 1986 as a national insurer on the principles of cooperative insurance and is the largest insurance company in Saudi Arabia.
After the Standard & Poor’s announcement, NCCI shares were trading at SR151 yesterday. NCCI’s lines of business include motor vehicle, medical, fire and property, energy, engineering, marine, aviation, casualty insurance and Takaful insurance.
“The upgrade reflects the company’s continuing dominance of the local market, the earnings potential from significant growth forecasts, and management’s proven approach to the risk management of NCCI,” Standard & Poor’s credit analyst Kevin Willis said on Tuesday.
The ratings also reflect NCCI’s positive management, very strong competitive position, very strong capitalization, and very strong liquidity. These positive factors are partially offset, however, by NCCI’s heavy exposure to equity investments and potentially volatile operating performance.
The stable outlook reflects Standard & Poor’s expectation that NCCI will retain its dominant market position as the newly regulated and restructured Saudi insurance market matures, and that earnings will develop as favorably as forecast by the company, particularly for the medical account.
Standard & Poor’s expects NCCI’s capitalization to remain very strong, driven principally by the extremely strong capital adequacy and supported by a good earnings stream and strong financial flexibility available to the company. Operating performance will remain good, with a combined ratio below 100 percent and average ROE higher than 10 percent. The impact of very rapid policy volume growth on both loss and expense ratios remains untested, however.
NCCI reported earlier net profit of SR313 million ($83.5 million) in 2005, up 66 percent from the previous year. Earnings per share also rose to SR31 from SR19 in 2004. NCCI’s total assets rose 32 percent to SR3.63 billion at the end of 2005 including shareholder equity of SR1.7 billion, up 118 percent from 2004. Turnover, in terms of insurance premiums, rose 18 percent to SR1.5 billion against SR1.27 billion in 2004.
Standard & Poor’s believes there is limited likelihood of the ratings on NCCI being raised further until the Saudi operating and competitive environment achieves greater long-term stability. Conversely, the ratings could be negatively affected by any material weakening of capital or of earnings prospects.