London – MENA Herald: Moody’s Investors Service has today assigned a Baa2 insurance financial strength rating (IFSR) to Buruj Cooperative Insurance Company (Buruj), based in Saudi Arabia. The outlook is stable.
Established in 2010, Buruj is a mid-sized insurer in Saudi Arabia and writes most lines of non-life insurance, together with health and some life insurance.

RATINGS RATIONALE
Moody’s Baa2 rating reflects (i) Buruj’s mid-sized position in the domestic market, ranking #18 in 2015, with a market share of around 1% in Saudi Arabia and overall total gross written premiums of SAR447 million (USD119 million) in 2015. Buruj is establishing a reputation for its good service, particularly within medical and motor insurance; (ii) the company’s relatively strong asset quality, with high risk assets (HRA) representing 49% of consolidated shareholders’ and policyholders’ capital at YE 2015; (iii) Buruj’s improved recent profitability with a 18.1% return on capital (ROC) in 2015; and (iv) improved capitalisation post the issuance of shares via a rights issue in 2015, increasing share
capital by 92% to SAR250 million.

Moody’s Assistant Vice President — Analyst, Mohammed Londe said that “Buruj’s prudent anagement has led to consistent improvements in its profitability and equity levels supported by an invested asset quality stronger than its rated GCC peers.”

However these strengths are somewhat offset by the significant concentration to the motor and medical lines of business as well as geographical concentration to Saudi Arabia. Furthermore, though
capitalisation has improved with gross underwriting leverage (GUL) of 3.2x at YE 2015 compared to 6.2x at YE 2014, GUL is still higher than other rated GCC peers who often have GUL of below 2x.

Moody’s further notes that Buruj’s historic profitability has been weak with a 5 year average ROC of 1.7%, suppressed by the losses incurred in 2011 and 2012. However improvements in underwriting profitability over the last three years, with an average combined ratio (COR) of 93.6% between 2013 and 2015, along with stable investment returns has driven a strong 3-year ROC of 15.4%.

OUTLOOK AND RATING DRIVERS

The stable rating outlook reflects Moody’s expectation that Buruj will maintain its improved capitalisation and profitability levels whilst also retaining its market share.

According to Moody’s, the rating could be upgraded if (i) capitalization improves further with GUL of around 2x; and/or (ii) profitability improves with ROC levels consistently over 12% and COR below 90%; and/or (iii) market share increases to around 2% whilst gaining a top 10 market position; and/or (iv) there is wider geographic diversification, with profitable underwriting positions in the broader GCC.

Conversely, the rating could come under negative pressure if (i) the capital position deteriorates, with GUL increasing to over 4x, or loss of major cedents in the reinsurance program occurs; and/or (ii) a significant deterioration in the underwriting performance occurs, with COR of above 100% for several years; and/or (iii) there is a deterioration in invested asset quality with HRA equating to over 80% of consolidated equity; and/or (iv) there is a significant reduction in market share.