S&P: UAE-Based Al Buhaira National Insurance Co. 'BB+' Ratings Put On Watch Negative On Regulatory Solvency Deficit

S&P Global Ratings said today that it had placed its 'BB+' issuer credit and financial strength ratings on United Arab Emirates (UAE)-based Al Buhaira National Insurance Co. (PSC) (ABNIC) on CreditWatch with negative implications.

The CreditWatch placement follows ABNIC's financial statement for the year ended Dec. 2017, in which it declared that the company had a solvency deficit and is taking steps to comply with the solvency margin requirement. The solvency deficit refers to Article 8, section 2, of the Financial Regulations for Insurance Companies, which took effect in January 2018.

As per the regulations, ABNIC has to submit to the regulator--UAE Insurance Authority--a realistic recovery plan to reestablish solvency levels. We have yet to review the plan, and there is no certainty that the regulator will approve it.

The reason for the solvency deficit is ABNIC's real estate investments, which accounted for almost 77.5% of the company's total investment portfolio as of Dec. 31, 2017, following 80% in 2016. As per the new regulations, any real estate investment in excess of 30% is not eligible for inclusion as ABNIC's calculation of own funds.

We note that, although ABNIC's regulatory solvency shows a deficit, according to our risk-based capital model for insurance companies, ABNIC's capital adequacy is sufficient to support the current ratings at this time.

The CreditWatch placement reflects the uncertainty regarding the regulator's acceptance of the recovery plan ABNIC intends to submit.

We expect to resolve the CreditWatch within 90 days after assessing ABNIC's recovery plan for meeting the minimum regulatory solvency capital and asset allocation requirement. We may affirm the ratings if the regulator approves the recovery plan. If ABNIC fails to reach an agreement with the regulator, we may lower the ratings by one or more notches.
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