A M Best affirms QIIC rating with ‘stable’ outlook

A M Best, an international insurance rating agency, has affirmed Qatar Islamic Insurance Company’s financial strength rating at ‘B++ (Good)’ and long-term issuer credit rating at “bbb+” with “stable” outlook.
The ratings reflect the insurer’s track record of excellent operating performance, adequate combined risk-adjusted capitalisation (considering both shareholders’ and policyholders’ funds), and niche business profile as a successful takaful provider in the Qatar insurance market.
However, offsetting rating factors include limited enterprise risk management and a high concentration of illiquid assets within its investment portfolio, it said.
This year, QIIC-led six-member natural insurance consortium was handed down a big deal by Supreme Council for Delivery and Legacy for capital expenditure works related to the construction of tournament stadiums. Qatar Rail had in 2014 awarded a similar deal to another consortium in which QIIC was also a member.
QIIC adopts a combined takaful model, whereby the shareholders’ fund charges the policyholders’ fund a ‘Wakala’ fee on gross written premiums and a ‘Muderaba’ fee on investment income.
The insurance company’s ability to accumulate surpluses within the policyholders’ fund whilst regularly distributing surplus back to policyholders “supports the sustainability” of the takaful model, it said.
Although QIIC’s combined risk-adjusted capitalisation remains “adequate”, the rating agency said while the company benefits from moderate underwriting leverage, capital requirements are largely driven by asset risk relating to the company’s concentrated portfolio, which is weighted towards domestic equities and real estate assets.
The policyholders’ fund is “sufficiently” capitalised on a standalone basis, supported by QR110mn of retained surplus as on September 30, 2016.
QIIC has a track record of strong operating and technical profitability, highlighted by a five-year average combined ratio of 80%. During the first nine months of 2016, the company generated a net profit of QR50mn.
“There has generally been a good balance of earnings between technical and investment income. Although the company has sustained unrealised losses on its equity portfolio over the past five years, its five-year (2011-2015) average investment return (including gains and losses) has been reasonable at 5.5%,” A M Best said.
QIIC has a niche position in its domestic insurance market as a provider of Shariah-compliant products, and a strong reputation that is somewhat attributable to the company’s track record of distributing surpluses back to policyholders.
QIIC’s gross written premium grew 2.5% to QR225mn during the first three quarters of 2016, in comparison to the same period in 2015.
Its enterprise risk management is developing, and whilst the company’s track record of technical profitability illustrates good underwriting controls, investment decisions are made at the board level, which has led to volatility in investment results, according to the rating agency.