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28 March 2024

Buhaira Insurance ratings lowered

Published
By Staff

Standard & Poor's Ratings Services said on Monday it lowered its long-term counterparty credit and insurer financial strength ratings on UAE-based composite insurer Al Buhaira National Insurance Co to 'BBB-' from 'BBB'.

At the same time, it removed the ratings from CreditWatch with negative implications, where the firm had been placed on July 23. The outlook is negative.
 
"The downgrade of ABNIC, the parent company and core operating entity of ABNIC Group, reflects our view that the group's financial profile has weakened," said Standard & Poor's credit analyst Nigel Bond.
 
This, in turn, reflects the belief that ABNIC Group's investments, liquidity, capitalisation, and financial flexibility have all weakened, primarily due to continued debt-funded property investment and rising leverage ratios.
 
ABNIC Group has a consistently high-risk investment strategy, concentrated primarily on property (72 per cent of total investments on June 30, 2010), and secondarily on equities, including investment in affiliates (11 per cent).
 
The ratings on ABNIC reflect the group's strong operating performance, good capitalisation, and good competitive position. Offsetting factors are its marginal investment profile and marginal liquidity; a lack of clear risk tolerances, particularly in its investment risk management; and its elevated debt and investment leverage.
 
The negative outlook reflects the view that ABNIC Group's debt leverage will rise to no more than 50 per cent by year-end 2010 (assuming the same amount of dividend and directors' fees is paid for 2010 as for 2009) and then decline to below 45 per cent thereafter; that the investment leverage ratio will rise to between 160 per cent – 170 per cent, again after deducting post-balance sheet items; and that net debt will rise to about Dh370 million (before deductions) in 2010 before declining once the property investment program concludes, assuming operating cash flow is positive. In addition, we remain sensitive to the short-term nature of the borrowing.