By Martin Morris
Agency says insurer’s competitive position negatively impacted by regulatory changes.
Standard & Poor’s said on Wednesday it has lowered its long-term counterparty credit and insurer financial strength ratings on Muscat-based insurer Oman United Insurance to 'BBB-' from 'BBB'. The outlook is stable.
"The downgrade reflects our view that despite remaining Oman's second-largest insurer OUIC's business profile has weakened as a result of a decline in its competitive position," said S&P credit analyst Neil Gosrani.
The agency said this is due to attempts to substantially increase motor rates following the authorities' introduction of a unified motor policy in July 2008, and from more constrained distribution given the withdrawal from an existing agreement.
In addition, the company suffered some management instability in 2008 and new strategies now need to be implemented.
Weak operating performance, particularly from the motor book of business, has placed pressure on the company's current earnings and combined with weakness in the local equity market has put downward pressure on OUIC's risk-adjusted capital adequacy, S&P added.
In 2008 OUIC recorded about OMR6 million of fair-value asset losses and impairments on investments, although shareholders' capital remains 'satisfactory' at OMR15.5 million at March 31, 2009 "The stable outlook on OUIC reflects our view that capital adequacy and operating performance will gradually improve as the company brings greater selectivity and therefore greater stability to its underwriting performance," added Gosrani.
Although unlikely, an outlook revision to negative may result from a decline in capital adequacy, which may be due to continued underwriting underperformance or depressed equity markets.
A positive ratings movement is unlikely during the outlook period and would require the rebuilding of a stable track record both in technical performance and in management and business strategies, the agency noted.