Substantial investments ‘mirror robust performance’ of Arab Orient Insurance

AMMAN — Reflecting a remarkable performance, the investments of Arab Orient Insurance Company (AOIC) increased to JD42.6 million at the end of March 2015.

According to unaudited financial statements covering the first quarter of this year, bank deposits accounted for JD35.4 million of the total, with the remaining JD7.2 million spread over financial assets at fair value.

Notes to the balance sheet showed that the cash in Jordanian dinars was deposited in 12 local banks for periods ranging between six months and one year, carrying 3.5-4.75 per cent interest rates during the first quarter of 2015.

The interest rates ranged between 3.25 – 5 per cent in 2014, down from 5.50 – 6.75 per cent in 2013. 

Of the total bank deposits, JD0.2 million were restricted as a legal requirement to the order of the director general of the Insurance  Commission (IC) .

The financial assets at fair value comprised the shares of Cairo Amman Bank, Amad Investment and Real Estate Development, Afaq for Energy, and Afaq Holding for Investment and Real Estate Development.

By contrast, the investments during the first quarter of last year amounted to JD38.8 million, of which JD33.7 million were deposits in banks and JD5.2 million were financial assets at fair value.

Financially, the income statement as of March 31, 2015 showed that AOIC increased net profit during the first quarter of this year by 50 per cent to JD2.7 million, compared to JD1.8 million at the end of March 2014.

During the first three months of this year, gross written premiums totalled JD35.2 million, 30.4 per cent higher than the JD27 million posted during the same period of last year.

According to the balance sheet as of March 31, 2015, total assets amounted to JD105.3 million, of which JD42.6 million were the abovementioned investments and JD42.8 million were net receivables.

Policyholders accounted for the majority of the net receivables which totalled JD30.3 million on March 31, 2014.

At JD34.7 million, shareholders equity comprised JD21.4 million capital, JD6.6 million retained earnings, and JD4 million mandatory reserve.

Despite such an impressive growth in investments and strong performance, AOIC Chairman Nasser Al Lozi indicated in the company's 17th annual report that 2014, just like the previous year, was marked by cut throat price competition.

"This approach [price competition] was the best option for insurance companies to secure business and maintain their market share," he said.

He explained that most insurance companies focused for a number of years on the investment side of operations rather than the technical, but the slump performance at the Amman Bourse, compelled them to shift to price competition.

Lozi also described 2014 as the most difficult of the past 10 years mentioning in particular scarce liquidity and lack of investment opportunities which influenced the purchasing power of the citizens and their living priorities.

"Despite competition, AOIC managed to keep up a high rate of policy renewals which, at 83 per cent, entailed  in some cases lowering prices for certain major projects, and, in other situations, widening the insurance  coverage," he wrote in a foreword.

According to the annual report, total premiums during 2014 amounted to JD94.9 million, 10.4 per cent higher than the JD86 million registered in 2013.

Marine insurance, accounted for JD2.6 million (JD2.3 million in 2013), fire insurance came at JD9 million (JD7.7 million) and liability, aviation and other insurance branches earned JD8.2 million (JD6.9 million).

Motor insurance premiums amounted to JD23.4 million (JD20.9 million) and the medical was the largest contributor with JD51.8 million (JD48.2 million). 

The report showed that paid claims during 2014 totalled JD70.7 million (JD61.6 million) the largest portion of which was JD41.9 million (JD45.8 million) in medical paid claims.

It was followed by JD18 million (JD13.7 million) in motor paid claims.

In terms of technical profit, medical insurance came atop with JD3.5 million, 105.8 per cent higher than the JD1.7 million generated in 2013.

Motor insurance ranked second with JD2.7 million technical profit, 37 per cent more than the JD2 million recorded in 2013.

Although the results of the remaining categories were lower in 2014 than the previous year, the overall technical profit of the five divisions reached JD7.3 million, 15 per cent higher than the JD6.3 million posted in 2013.

Besides the technical profits, the company earned JD1.5 million from bank interest, 4.3 per cent less than the JD1.6 million earned in 2013.  The chairman valued the medical activities indicating that this type of insurance covers more than 292,000 subscribers who hailed from 844 companies.

Lozi also esteemed the business coming from mega-projects pointing out that AOIC continues to serve more than 2,700 companies, describing this base as the largest corporate insurance portfolio in the Kingdom.

With an eye on the opportunities in large projects, he expected advantages for the Jordanian insurance market from growth in development schemes such as phosphate, potash, electricity and airport.

However, Lozi indicated that the foremost challenge facing the companies was the negative results brought by the civil liability of compulsory motor insurance, known as third party liability (TPL), from using cars. 

"Refusing to allow insurance companies to price or to choose the risks that correspond with its underwriting policies, means more losses to the sector unless the TPL prices are floated in a way that would balance between the premium and the risk," he said in the report, noting that IC is on course towards the floating objective during 2015.

Another challenge mentioned by Lozi was the stringency in the international reinsurance market regarding renewal of contracts for 2015.

"The strategy of reinsurance corporations continues to focus on specialisation to ensure profitability, on raising the technical profits of the direct [ceding] companies, and on minimising the losses rate as a result of the drop in returns from investments in international markets," the chairman added.

This rigidity was, however, surpassed under a unified collective reinsurance agreement, or a master treaty, organised for the fifth year by the Gulf Insurance Group (GIG) which owns a 90.2 per cent stake in AOIC.

Under the reinsurance master treaty, led in 2015 by Hannover Re., AOIC and other entities obtain better advantages.

A good example of the importance of such agreement was the fire at the factory of Al Nabil Company for Food Products, 

Although the preliminary report estimated the losses at around JD10 million, a calculation of claims to be paid under the unified collective reinsurance agreement reduced the AOIC share of the claim to only JD88,000.     

At the end of last year,  the operations of the company resulted in a JD5 million net profit after tax and provisions, 23.1 per cent higher than the JD4.1 million recorded at the end of 2013.

Lozi  underlined AOIC's successes indicating that total assets rose by 12.5 per cent to JD94 million (83.6 million in 2013).

Other data highlighted by the chairman included a 4.4 per cent increase in technical provisions which reached JD34.2 million (JD32.8 million).

AOIC, whose labour force comprises 278 employees, aims at exploring all possible opportunities to obtain a licence that would enable it add life insurance to its activities.

The company is currently distributing JD2.1 million in cash dividends to shareholders at a rate of 10 per cent.