Global insurance rating agency A M Best has assigned a financial strength rating of A- (Excellent) and a long-term issuer credit rating of “a-” (Excellent) to Al Khaleej Takaful Insurance Company with “stable” outlook.
The ratings reflect the insurer’s balance sheet strength, which AM Best assesses as “very strong”, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
Al Khaleej is a takaful insurer and operates through a hybrid model, whereby the shareholders’ fund (SHF) charges the policyholders’ fund (PHF) a ‘Wakala’ fee based on gross written contributions (GWC) and a ‘Mudaraba’ fee based on investment income.
The insurance company’s balance sheet strength is underpinned by its risk-adjusted capitalisation comfortably above the threshold for a strongest assessment, as measured by Best’s capital adequacy ratio (BCAR).
The rating agency considers the company’s risk-adjusted capitalisation on a combined basis, including its policyholders’ and shareholders’ funds, due to the strength of domestic regulation and requirement that the shareholders’ fund would have to support the PHF if it were to fall into deficit.
Despite its meaningful exposure to Qatari real estate, overall, the company has a conservative and liquid investment portfolio, with cash and sukuk holdings covering net technical reserves by 264.6% at the end of the third quarter of 2024. An offsetting factor to the balance sheet strength assessment is the company’s moderately high reliance on reinsurance, which is mitigated partially by a reinsurance panel of excellent credit quality.
The rating agency assesses the insurer’s operating performance as strong. The company has reported robust underwriting performance consistently, with a five-year (2019-23) weighted average combined ratio (including short-term life results) of 83.6%.
The company is expected to report similarly strong underwriting results in 2024. Earnings are balanced between SHF and PHF, with both funds achieving growth over recent years.
Overall operating performance has been volatile in the past, driven by fluctuations in investment returns. Since 2020, it has taken actions to de-risk its investment portfolio, which has translated into progressive improvements in return on equity (ROE), with the company achieving double-digit ROEs since 2022.
Al Khaleej holds a niche position within its domestic insurance market and has achieved a compounded annual growth rate of 4.5% over the five-year period between 2019 and 2023.
The company is expected to announce material growth in GWC during 2024, in part as a result of a fronting arrangement signed with a leading international medical provider during the fourth quarter of 2023.
Despite good growth, it has a relatively low product diversification, with its business mix mainly dominated by motor and medical lines on a net basis.
