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S&P rates MedGulf Bahrain on a consolidated basis, including its subsidiaries and affiliates (the Medgulf group). The MedGulf group enjoys a strong business risk profile and a strong financial risk profile. The agency said, “We base our view of its business risk profile on its leading insurance franchises in the Lebanon and in Saudi Arabia (KSA), as well as operation of insurance service companies, and small insurance operations in Bahrain, Jordan, and the U.K. Life Sector. We regard the industry and country risk the group is exposed to in these markets as intermediate. We also assess its competitive position as strong. We base our assessment of its financial risk profile on our view of its strong capital and earnings, intermediate risk position, and adequate financial flexibility.
Under our criteria, the group's business and financial risk profiles indicate a dual outcome anchor of 'a/a-'. We chose the higher of these based on our view that the MedGulf group has good prospects for profitable expansion, as well as improving earnings expectations in its existing main market of Saudi Arabia. Earnings are expected to generate profits which we understand will be retained to reinforce shareholders' equity. We also see the adequate enterprise risk management, satisfactory management and governance, and strong liquidity as supportive of the anchor. Thus, the final rating is 'A'.
MedGulf Bahrain is a private company with three owners:
SLH Holding, an investment vehicle for the El Zein family (60.175%); ORIX Corp. of Japan (25.752%); and International Finance Corp., part of the World Bank group (14.073%).
Although the MedGulf group has existed for well over 30 years, MedGulf Bahrain itself was set up in May 1995 as a parent company for the rest of the MedGulf insurance group. It also acts as an operating insurance company in its own right. Following regulatory changes in KSA, it transferred the substantial book of KSA insurance it wrote on an offshore basis to an affiliate based in Riyadh, Mediterranean & Gulf Cooperative Insurance & Reinsurance Co. (MedGulf KSA). It now mainly writes business in Bahrain.”
MedGulf Bahrain fully owns the following companies:
MedGulf Lebanon, which is the leader in its local market; Addison Bradley & Co. Ltd., an insurance risk management, reinsurance, and brokerage consultancy; Medivisa, a service company specializing in medical claims administration; and Motion, a service company specializing in motor claims administration.
Its service companies operate as independent profit centres and offer claims administration to the group's insurance operating companies.
In addition, MedGulf Bahrain partially controls:
MedGulf Takaful B.S.C., a Bahrain-based Sharia law-compliant composite (life and non-life) assurer which principally writes life protection and savings business (it owns 75%); Omnilife, a small life company based and regulated in the U.K. (90.5%); and MedGulf Jordan (56.2%).
Finally, MedGulf Bahrain has direct and indirect holdings totaling 43.5% of MedGulf KSA, which is the second-largest insurer in Saudi Arabia. MedGulf KSA principally writes medical and motor business, as well as other commercial lines.
Given the ownership position, MedGulf KSA is fully consolidated into MedGulf Bahrain's group accounts. In 2012, the KSA operation represented approximately 80% of the MedGulf group's consolidated gross premium written (GPW) of Saudi Arabian riyals (SAR) 4.1 billion ($1.1 billion) and about 60% of total assets.
S&P said, “On a consolidated basis, we regard MedGulf Bahrain's business risk profile as strong. This takes into account the group's strong competitive position in the KSA and, to a lesser extent, its leading position in the smaller Lebanon market. We expect business volumes and geographic and line-of-business diversification to improve steadily over the two-year outlook period and beyond, as management seeks to expand into new markets such as Egypt, Turkey, Iraq, United Arab Emirates, Malaysia, and Indonesia.
Although we expect the group to maintain its particular expertise in medical insurance, line-of-business diversification is likely to increase. We consider the group most likely to expand first into retail motor lines and then to steadily increase its emphasis on Sharia-compliant life business (family takaful). In this latter sector, the group can use its marketing skills to generate business across all Islamic communities, including those in Europe.
The company's strong consolidated business risk profile also incorporates what we regard as the intermediate industry and country risk of the group's operations. The group's current operations tend to be centered in markets that are well-supervised and regulated, both by local boards of directors and by effective local regulators and auditors. We do not expect the group's potential expansion into new Islamic markets to materially change our view of MedGulf's intermediate industry and country risk position.
We principally base our view of the Medgulf group's financial risk profile as strong on its similarly strong current and prospective capital and earnings. Total adjusted capital, net of intangibles and shareholder loans, stood at SAR1.3 billion at year-end 2012. In addition, comprehensive net income was SAR182.6 million (2011: SAR283.5 million). We expect these results to improve significantly during the outlook period.
Our view of the financial risk profile is supported by MedGulf Bahrain's adequate financial flexibility. Its likely need for additional cash or capital is modest and largely predictable, unless it undertakes an opportunistic acquisition. In such a case, we would expect it to arrange appropriate funding before assuming any commitment.
The stable outlook reflects our expectation that MedGulf Bahrain and its consolidated subsidiaries and associates will maintain a strong business risk profile based on continued, successful expansion within existing and new business lines and markets. At the same time, we expect the group to maintain its strong financial risk profile. The capital strain of the expected business expansion is likely to be offset by parallel growth in the capital base through the retention of earnings. This should be sufficient to maintain at least very strong capital adequacy.
We do not anticipate raising the ratings in the next two years. Similarly, we do not expect to lower the ratings, although we could if our assessment of capital and earnings declines below strong levels.
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