Abu Dhabi National Insurance Company (ADNIC) plans to boost its capital by 390 million dirhams ($106 million), it said on Monday, and several sources said it would do this with a convertible bond issue.
The company has posted a run of weak earnings due to a poor underwriting performance on core commercial business lines, leaving the insurer needing to shore up its reserves.
ADNIC is looking to sell a convertible bond as soon as the first quarter, two sources with knowledge of the matter said. One Abu Dhabi-based source the issue would be a mandatory convertible, meaning the bonds will automatically turn into ADNIC shares at the end of the bond's life.
Convertible bonds are rare in the Gulf region, with only a couple of companies ever having issued them.
Three sources with knowledge of the matter said National Bank of Abu Dhabi had been appointed to arrange the issue.
A spokesman for ADNIC confirmed it was planning to boost its capital by 390 million dirhams, although he said no lead manager had yet been appointed for the transaction.
He also declined to elaborate on the manner of the capital increase, or the time frame.
ADNIC, owned 23.8 percent by the state-owned fund Abu Dhabi Investment Council, has been seeking to strengthen its capital adequacy since the middle of last year, the two sources said.
The Abu Dhabi-based source said the unusual structure being considered had delayed the capital raising.
Ratings agency A.M. Best said in August when it placed ADNIC's A- rating under review with negative implications that the company expected to restore its capital position to a level supportive of the current credit rating by the end of 2015.
Like many UAE insurers, ADNIC has struggled to maintain profitability in the face of difficult market conditions.
In a Dec. 8 note, Standard & Poor's said while the sector had reported strong premium growth in the first nine months of 2015, underwriting and net earnings remained weak due to intense competition, weak investment returns and corrections to technical reserves.
The outlook was not expected to improve for the sector until at least 2017, the agency said.
ADNIC has posted net losses in four of the previous five quarters.