Fitch Ratings has affirmed the insurer financial strength (IFS) Rating of Oman Reinsurance Company SAOG (Oman Re) at “BBB-.” The outlook remains stable, the credit agency noted.
The affirmation reflects Oman Re's investment risk tied to the credit quality of the Omani sovereign, and its solid company profile, capitalization, and financial performance.
Fitch considers Oman Re's investment and asset risk to be closely linked to the credit quality of the Omani sovereign. At the end of 2023, 60% of Oman Re's total invested assets were in term deposits with Omani banks or US dollar-denominated government bonds issued by Oman, down from 68% in 2022.
Fitch noted that Oman Re maintains a prudent investment strategy with a well-diversified portfolio. The company's conservative asset allocation is demonstrated by a risky-assets/capital ratio (RAR) of 66% in 2023, an improvement from 87% in 2022. This improvement is attributed to the upgrade of the Omani sovereign rating in September 2023 and efforts to diversify the investment portfolio.
Oman Re has also expanded its operations through its Qatar Financial Centre branch and primarily invests new funds in high credit quality, foreign currency-denominated assets.
Over the past five years, Oman Re has significantly consolidated its business franchise, operating mainly in the Middle East and North African region. The largest market in its reinsurance book in 2023 was Turkey, contributing 14%, followed by the UAE, Pakistan, and Oman.
That said, compared to global peers, Oman Re has a small operating scale, with gross reinsurance revenue of OMR42 million (US$111 million) in 2023.
Fitch considers Oman Re's capitalization supportive of the rating. Based on end-2023 data, the reinsurer's Prism Global model score remained at the low end of “Strong,” consistent with 2022. Target capital pressure stemmed from strong double-digit growth in reinsurance revenue, while equity increased by 8.4%. Oman Re's available capital is of high quality, primarily composed of paid-up share capital, with a regulatory solvency margin of 214% at the end of 2023.
Fitch views Oman Re's financial performance as strong, reflected in a net income return on equity of 8.4% in 2023, up from 7.5% in 2022. The company achieved a net profit after tax of OMR2.5 million in 2023, an increase from OMR2.1 million in 2022, supported by strong underwriting and investment results. The combined ratio improved to 88.6% in 2023 from 97.5% in 2022, driven by a better loss ratio.
Fitch considers Oman Re's reserving practices prudent and its reserve adequacy strong, supported by strong actuarial expertise and conservative underwriting policies. Most of Oman Re's business is short-tail.
Factors that could lead to a positive rating action or upgrade include an upgrade of the Omani sovereign or banks' ratings, reduced exposure to the Omani banking system through significant rebalancing of the investment portfolio from term deposits and other investments via Omani banks, and a strengthened company profile assessment.
Factors that could lead to a negative rating action or downgrade include a downgrade of Oman's sovereign rating or Omani banks' ratings and a decline in capitalization, measured by a Prism FBM score at the low end of “Adequate.”
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