AM Best Upgrades Issuer Credit Rating of Solidarity Bahrain B.S.C.

AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to "bbb+" from "bbb" and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Solidarity Bahrain B.S.C. (Solidarity Bahrain) (Bahrain). The outlook of the Long-Term ICR has been revised to stable from positive, while the outlook of the FSR remains stable.

The Credit Ratings (ratings) reflect Solidarity Bahrain's balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. In addition, the ratings consider, in the form of lift, Solidarity Bahrain's strategic importance to its parent company, Solidarity Group Holding BSC (c) (SGH), a leading provider of Islamic insurance solutions in Bahrain and Jordan. The Long-Term ICR upgrade reflects the improvement in the business profile of SGH, achieved through a stronger competitive position in Bahrain, following the integration of Al Ahlia Insurance Company B.S.C. (AAIC), acquired in 2016.

Solidarity Bahrain's balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR), its good liquidity, and its financial flexibility, with access to the debt and the equity markets. Offsetting factors are the company's high reinsurance dependence and elevated asset risk due to the concentration of its investments in Bahrain and the Gulf Corporation Council.

AM Best expects Solidarity Bahrain's operating performance to remain adequate over the underwriting cycle, supported by positive technical earnings and moderate investment income. The company reported a healthy return on equity (ROE) of 10% in 2018, supported by corrective actions taken by management to improve the profitability of AAIC's legacy operations. AM Best expects Solidarity Bahrain's ROE to improve moderately in the medium term, driven by a continued focus on technical discipline.

Solidarity Bahrain was formed following the merger between AAIC and Solidarity General Takaful BSC (c) in 2017, which created a leading insurer in Bahrain's insurance market, with BD 30 million of gross written contribution in 2018. Nonetheless, Solidarity Bahrain's business profile is limited by its concentration in Bahrain's insurance market, which is relatively small and highly competitive.

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