A.M. Best has assigned a financial strength rating of B++ (Good) and an issuer credit rating of “bbb+” to Qatar Islamic Insurance Company Q.S.C. (QIIC) (Qatar). The outlook assigned to both ratings is stable.
The ratings for QIIC reflect its strong combined risk-adjusted capitalisation, 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 is strong, benefiting from low underwriting leverage and good internal capital generation. Capital requirements are largely driven by QIIC’s concentrated investment profile, which is weighted toward domestic equity and real estate assets. Additionally, the company has generated a self-sustaining policyholders’ fund, with QAR 110 million (USD 30 million) in retained surplus, adequately supporting the risks assumed by policyholders. Risk-adjusted capitalisation is expected to remain sufficiently strong to support prospective strategic initiatives.
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 earnings of QAR 62 million (USD 17 million) in the first three quarters of 2014. QIIC has an impressive track record of underwriting profitability with a five-year weighted average combined ratio (replacing Wakala fees for actual expenses) of 86%, 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 18% 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.
Positive pressure could arise from improvements in ERM, coupled with profitable expansion of the company’s profile. Negative pressure may arise from deterioration in risk-adjusted capitalisation in either of the combined or policyholders’ funds.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilised:
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- Takaful (Shari'a Compliant) Insurance Companies
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
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