AM Best, a global insurance rating agency, has affirmed Qatar Islamic Insurance's financial strength rating of B++ (Good) and the long-term issuer credit rating of “bbb+”, while revising upward the outlooks to 'positive'.
The ratings reflect the risk cover provider’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
The revision of the outlooks to positive reflects the rating agency's expectation that the insurer would continue to generate strong operating returns, with the retention of earnings further enhancing the balance sheet strength over the short to medium term.
The insurer utilises a hybrid takaful model, whereby the shareholders’ fund 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 ability to accumulate surpluses within the PHF, whilst regularly distributing surplus back to policyholders, supports the sustainability of the takaful model, according to AM Best.
The insurer's balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s capital adequacy ratio (BCAR).
The group is less reliant on reinsurance compared with its regional peers and the programme is placed with a well-rated reinsurance panel.
The company maintains sufficient liquidity to support its insurance operations; however, it is exposed to illiquid assets in the form of real estate and associate investments, which accounted for approximately 52% of total investments as at year-end 2019.
AM Best expects the group to continue to move into alignment with regulatory requirements with regard to its investment concentrations.
Capital buffers provide some cushion against potential investment losses due to current volatility in global financial markets.
It has a track record of strong operating and technical profitability, with net profits increasing by 15.3% in 2019 to QR73mn, equivalent to a return on equity of 14.1%.
Profitability is underpinned by solid and stable underwriting performance, highlighted by a strong five-year average (2015-19) combined ratio of 77.2%.
The insurance company is geographically concentrated, writing all of its business in its domestic market, Qatar, where it maintains a niche market position as an established provider of Shariah-compliant products.
The group’s strong reputation in Qatar benefits from its track record of distributing surpluses back to its policyholders. The group is a member of the national insurance consortium, which provides the risk provider with access to large government infrastructure contracts. Its GWC grew 6% to QR405mn in 2019.