"Our ratings reflect our view of AMEA's fair business profile, based on its adequate competitive position and moderate industry and country risk. We also take into account our assessment of the company's moderately strong financial profile, reflecting moderately strong capital and earnings, an intermediate risk position, and adequate financial flexibility. We combine these factors to derive an anchor and stand-alone credit profile (SACP) of 'bbb'. Our views of the group's management and governance and enterprise risk management are neutral and do not affect our assessment.
"Our ratings incorporate three notches of support because, in our view, AMEA is strategically important to its ultimate parent,
"Overall, we consider that AMEA faces moderate industry and country risk. This reflects the weighted-average assessments of industry and country risk in the four countries where AMEA writes business:
"Our assessment for
"AMEA has an adequate competitive position. In our view, the company's profile has neither overt strengths nor overt weaknesses. The company benefits from some geographic diversity, albeit mostly in small underpenetrated markets. As with other AIG subsidiaries, operating performance constrains our view of competitive position because AMEA has higher expenses than peers. In contrast, loss performance has been better than average across AMEA's targeted territories at about 50 per cent over the past five years. AMEA's higher expenses stem from high initial upfront marketing expenditure and operational recharges levied by the subgroup's parent. Distribution is neutral to our analysis--sales are predominantly intermediated through nonexclusive agents and brokers. A recent exclusive bancassurance agreement will increase controlled distribution, although this is not expected to affect our overall view of the company's competitive position.
"We expect AMEA's moderately strong capital and earnings to remain at the current level. In our base-case scenario, we assume underwriting results will improve to 100 per cent from 120 per cent between 2014 and 2016, based on stable loss performance and falling expenses. We predict investment yield will remain modest at around 2 per cent, reflecting the company's conservative deposit-focused portfolio, and expect no dividends to be paid between 2014 and 2016. By 2016, net income under these conditions will be about
"In our view, AMEA's intermediate risk position benefits from a largely conservative investment portfolio primarily comprising cash (71 per cent) and bonds (26 per cent). The company's assets are exposed to financial sector concentration, although they are mostly held with strongly rated international banks.
"AMEA has adequate financial flexibility in our view, reflecting a debt-free balance sheet and modest operating cash flows. Its parent has demonstrated its support through capital infusions that supported the acquisition of books of business. We expect capital infusions between 2014 and 2016 of about AED 33 million (
"We regard AMEA's enterprise risk management (ERM) and management and governance practices as neutral rating factors. Our assessment of ERM as adequate reflects our view that risk-management culture and risk controls support the range of risks written by the company and are aligned to those of its parent.
"We assess AMEA's liquidity as exceptional, based on inflows of premium income and a cash-focused investment portfolio. The absence of issued debt or confidence-sensitive liabilities also supports our assessment.
"The stable outlook for AMEA reflects our expectation that the company will post operating performance in line with our base-case scenario and maintain moderately strong capital and earnings.
"We could lower the rating if AMEA's gross premium grew significantly more in
"We could also lower the rating if AMEA's parent failed to provide capital injections to support new business in a timely manner, leading us to reassess AMEA's strategic importance to its parent.
"We view an upgrade as unlikely at this stage."
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