OLDWICK : Insurance sector rating agency, AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating and affirmed the Financial Strength Rating of B (Fair) and the Long-Term ICR of “bb” of Noor Takaful General (NTG) of United Arab Emirates. The outlook of the FSR remains stable.
The ratings reflect NTG’s balance sheet strength, which AM Best categorises as strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
The positive outlook for the Long-Term ICR reflects the ongoing strengthening of NTG’s ERM capabilities. The company historically operated with sound silo risk management practices; however, in recent years, NTG has undertaken steps to establish an enterprise-wide risk-aware culture and implement tools to manage its risk exposures consistently.
AM Best expects that further anticipated improvements will lead to an ERM framework that is appropriate given the scale and complexity of NTG’s operations.
NTG’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). However, prospective risk-adjusted capitalisation is susceptible to volatility given NTG’s small capital base.
The balance sheet strength assessment also considers NTG’s conservative investment portfolio and its proven financial flexibility in the form of capital injections.
NTG’s business profile is limited as a result of the small size of its portfolio and its concentration within the UAE’s non-life takaful insurance market. Due to its size and position as a relatively new player in its domestic market, the company’s operating performance has been volatile with underwriting losses reported in four of the past five years (2014 – 2018) and an average non-life combined ratio over the same period of 110% (as calculated by AM Best).
However, following a period of targeted growth in profitable segments, the company’s technical performance has improved, with NTG reporting a combined ratio of 96% in 2018 (2017: 100%). Further improvements were demonstrated in the first nine months of 2019, with the loss ratio improving to 44% from 50% at year-end 2018. The company recorded a net profit of AED 6.0 million for the first nine months of 2019 (same period 2018: AED 1.9 million).