The ratings reflect the risk cover provider’s balance sheet strength, which A M Best categorises as “very strong”, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
QIIC adopts a hybrid takaful model, whereby the shareholders’ fund (SHF) charges the policyholders’ fund (PHF) a ‘Wakala’ fee based on gross written contributions (GWC) and a ‘Muderaba’ fee based on investment income.
The insurance company’s ability to accumulate surpluses within the PHF whilst regularly distributing surplus back to policyholders supports the sustainability of the takaful model, according to the rating agency.
On a combined basis, incorporating the PHF and SHF, capital requirements are heavily weighted towards asset risk due to the company’s high risk and concentrated investment composition, it said.
Despite this, the company’s level of risk-adjusted capitalisation remains at the strongest level as measured by Best’s capital adequacy ratio model. Offsetting factors include the company’s moderate reliance on reinsurers and a weak reserving process.
The PHF is considered to be sufficiently capitalised on a standalone basis, supported by QR119mn in accumulated surplus at year-end 2017.
QIIC has a track record of strong operating and technical profitability, highlighted by a five-year average (2013-17) combined ratio of 79% that has remained very stable over recent years, it said.
While there has generally 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 four years.
During 2017, the company reported net profit of QR62mn, equivalent to a sound return on equity of 13%.
Although the company is concentrated to its domestic market of Qatar, it maintains a niche market position as an established provider of Shariah-compliant products and a strong reputation that is partially attributable 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 sizeable government infrastructure contracts. QIIC reported modest premium growth in 2017, as the company reported a 1% increase in GWC to QR317mn compared with 2016.