DOHA: A.M. Best has affirmed the Financial Strength Rating of B++ and the Long-Term Issuer Credit Rating of “BBB+” of Qatar Islamic Insurance Company Q.S.C. (QIIC). The outlook of these Credit Ratings (ratings) is stable, a notice issued to Qatar Stock Exchange said.
The ratings reflect QIIC’s balance sheet strength, which AM Best categories as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).[the_ad id=”31605″]QIIC adopts a hybrid takaful model, whereby the shareholders’ fund charges the policyholders’ fund (PHF) a Wakala fee based on gross written contributions (GWC) and a Mudaraba fee based on investment income. QIIC’s ability to accumulate surpluses within the PHF, whilst regularly distributing surplus back to policyholders, supports the sustainability of the takaful model.
QIIC’s balance sheet strength is underpinned by risk-adjusted capitalisation, which, as measured by Best’s Capital Adequacy Ratio (BCAR), is consistent with the strongest assessment. The balance sheet strength assessment also benefits from high levels of liquidity to sustain its insurance operations and a well-rated reinsurance panel. AM Best expects prospective risk-adjusted capitalisation to benefit from good internal capital generation.
QIIC’s balance sheet strength, however, is offset by its unsophisticated approach to reserving and high-risk investment strategy. QIIC is exposed significantly to illiquid assets in the form of real estate and associate investments, accounting for approximately 55% of total investments as at year-end 2018. Despite exposing the company’s risk-adjusted capitalisation to significant volatility, capital buffers provide some cushion against potential investment losses.
QIIC has a track record of strong operating and technical profitability, highlighted by a five-year average (2014-2018) combined ratio of 77.2% that has remained very stable over recent years. Whilst generally there has been a good balance of earnings between technical and investment income, a volatile investment environment in Qatar has meant investment returns have declined over the past five years. In 2018, the company reported net profit of QAR 63 million, equivalent to a healthy return on equity of 12.9%.
Although the company is concentrated to its domestic market of Qatar, QIIC maintains a niche market position as an established provider of Shari’a-compliant products and a strong reputation that is attributable partially to the company’s track record of distributing surpluses back to its policyholders. Moreover, the company benefits from being a member of the National Insurance Consortium, which provides QIIC access to sizable government infrastructure contracts. QIIC reported strong premium growth in 2018, with a 21% increase in GWC to QAR 382 million, compared with 2017.
Whilst QIIC’s ERM framework is considered appropriate, AM Best has concerns over the company’s approach to managing its investments operations, especially given the size of illiquid assets relative to its capital.
AM Best is the only global credit rating agency with a unique focus on the insurance industry. Best’s Ratings, which are issued through A.M. Best Rating Services, Inc., are a recognized indicator of insurer financial strength and creditworthiness.
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