A.M. Best has downgraded the financial strength rating to C++ (Marginal) from B (Fair) and the issuer credit rating to “b” from “bb” of Al Ittihad Al Watani (L'Union Nationale) Société Générale D'Assurances du Proche Orient, sal (Al Ittihad) (Lebanon). The outlook for both ratings remains negative.

The rating action reflects Al Ittihad’s materially weakened risk-adjusted capitalisation, continued poor operating performance and deteriorated liquidity indicators for the first half of 2015.

Al Ittihad’s risk-adjusted capitalisation has decreased significantly at year-end 2014 following the recent restatement of its assets and liabilities, which has led to a significant decrease in shareholders’ equity. This was chiefly driven by an increase in the company’s unearned premium reserve following the adoption of new regulation in the United Arab Emirates, and a decrease in the fair value of its investment property held for sale. The company’s capital position was further eroded over the first six months of 2015, with Al Ittihad reporting a loss of LBP 275.4 million at 30 June 2015. Overall, Al Ittihad’s shareholders’ equity decreased to LBP 45.5 billion at 30 June 2015 from LBP 68.9 billion at year-end 2013 as originally audited.

Moreover, the company’s liquidity indicators deteriorated in the first half of 2015, with an increase in bank overdraft of LBP 3.3 billion to LBP 13.6 billion, and negative cash flows from operating activities of LBP 5.8 billion, against positive cash flows of LBP 2.0 billion for the first six months of 2014.

The company also continues to face significant challenges, as it is contesting approximately KWD 2.4 million of claims originating from the Ministry of Health in Kuwait, which were not provisioned in the company’s accounts at half-year 2015, whilst its operating environment remains characterised by the intense competition prevailing in its key markets of the UAE and Lebanon.

The negative outlook has been maintained on the ratings, reflecting the uncertainty prevailing over the company’s business strategy and operating performance.

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

####