Qatar: Al Khaleej Takaful Group assigned 'BBB' ratings with stable outlook
Source: Middle East Insurance Review | Mar 2015
Standard & Poor’s (S&P) has assigned ‘BBB’ long-term counterparty credit and insurer financial strength ratings to Qatari insurer Al Khaleej Takaful Group (KTG). The outlook is stable.
The ratings reflect S&P’s assessments of KTG’s business risk profile (BRP) as fair, and financial risk profile (FRP) as upper adequate. The BRP assessment reflects KTG’s adequate competitive position as the fourth largest national insurance company in Qatar, where S&P assesses industry and country risk as intermediate.
S&P said: “KTG is a small insurer, with gross premiums written in 2014 of QAR315 million (US$86.5 million), which constrains our view of the company’s BRP. Further weighing on our assessment is KTG’s relatively poor historical underwriting performance compared with its peers’.
“In a very competitive market where, generally, takaful players are yet to find their feet, KTG’s combined (loss and expense) ratio has been witnessing material volatility, notably under the constraint of a high expense ratio. Our base-case assumption is that KTG will gradually improve its underwriting earnings over the next two years, in line with a combined ratio of below 110% and a surplus in the policyholder fund. We also expect premium income to grow at least at the market rate of 10% per year.”
The FRP assessment reflects S&P’s view of KTG as having extremely strong risk-based capital adequacy, which is somewhat offset by its smaller balance sheet and high risk position, due to the strong investment bias toward equities and real estate.
S&P said KTG’s extremely strong capital adequacy provides a cushion against both underwriting event stress and the potential volatility from its investment portfolio. Its overall view on capital and earnings is however dampened by KTG’s modest balance sheet.
The stable outlook reflects S&P’s opinion that KTG’s capital adequacy will continue to exceed the ‘AAA’ benchmark based on S&P’s model, over the next two years. “We expect this to be buoyed by earnings retention and support from shareholders. We also anticipate that KTG will gradually improve its risk position through tighter asset-liability portfolio management,” it added.
QAR1 = US$0.27