A.M. Best has affirmed the financial strength rating of B++ (Good) and the issuer credit ratings of “bbb+” of Qatar Islamic Insurance Company Q.S.C. (QIIC) (Qatar). The outlook for both ratings remains stable.
The ratings for QIIC reflect its adequate combined risk-adjusted capitalisation (considering both shareholders’ and policyholders’ funds), sustainable policyholders’ fund, good track record of operating performance and niche market position as a takaful provider in the Qatari market. Offsetting rating factors include limited enterprise risk management and a high concentration of illiquid assets within its investment portfolio.
QIIC’s combined risk-adjusted capitalisation has weakened as a result of a shift in the company’s asset allocation toward real estate assets; however, it remains at an adequate level. Capital requirements are largely driven by QIIC’s concentrated investment profile, which is weighted toward domestic equity and real estate assets. The company has generated a self-sustaining policyholders’ fund, with QAR 132 million (USD 30 million) in retained surplus at the end of the third quarter of 2015, adequately supporting the risks assumed by policyholders. Risk-adjusted capitalisation is expected to remain sufficiently strong to support QIIC’s planned growth.
QIIC adopts a combined takaful model, whereby the shareholders’ fund charges a Wakala fee based on gross written premiums and a Muderaba fee based on investment income to the policyholders’ fund. QIIC has consistently generated surpluses within the policyholders’ fund and regularly distributed surplus back to policyholders. The company has developed a sound balance of earnings between the shareholders’ and policyholders’ funds, which reinforces the sustainability of the model.
QIIC achieved overall profits and policyholder surplus of QAR 90.5 million (USD 24.8 million) in the first three quarters of 2015. QIIC has an impressive track record of underwriting profitability with a five-year weighted average combined ratio (replacing Wakala fees for actual expenses) of 80%, reflecting consistently strong profitability in medical and Family Takaful (life) lines of business. QIIC’s performance is supported by strong investment returns from equity and real estate assets in Qatar, producing an average return on equity of 21% over the same period.
As a provider of Shari’a compliant products, QIIC enjoys a niche position in the Qatari market. QIIC’s distribution of surpluses back to policyholders, in line with its takaful operating model, provides a competitive advantage over other market players.
QIIC’s enterprise risk management is developing. The company has sound underwriting controls in place; however, investment decisions are made at board level. As such, the high concentrations in real estate and equities in the company’s portfolio can create volatility in operating results and limit liquidity.