LONDON: AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb” of UAE based Noor Takaful Family (NTF). The outlook of the FSR remains stable.
The ratings reflect NTF’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The positive Long-Term ICR outlook reflects the ongoing strengthening of NTF’s ERM capabilities. The company historically operated with sound silo risk management practices; however, in recent years, NTF 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 NTF’s operations.
NTF’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 NTF’s small capital base.
The balance sheet strength assessment also considers NTF’s conservative investment portfolio and its proven financial flexibility in the form of capital injections.
NTF’s business profile is limited as a result of the small size of its portfolio and its concentration within UAE’s life and medical takaful insurance markets. Due to its size and position as a relatively new player in its domestic market, the company’s operating performance has been modest but positive, with an average return on equity over the past five years (2014-2018) of 4.4% (as calculated by AM Best).
The company recorded a net profit of AED 2.1 million for the first nine months of 2019 (same period 2018: AED 3.8 million), with lower profitability on medical business lines offset by stabile returns on the life portfolio. AM Best expects the company to continue generating modest net profits over the short to medium term.