Takaful News - UAE: A.M. Best places Watania ratings under review with negative implications
Source: Middle East Insurance Review | Dec 2015
A.M. Best has placed under review with negative implications the financial strength rating (FSR) of B+ (Good) and the issuer credit rating of “bbb-” of National Takaful Company (Watania). The rating action reflects Watania’s weak underwriting performance since incorporation.
During 2015, operating losses have resulted in weakened risk-adjusted capitalisation and reduced liquidity. Watania has experienced significant losses in its motor portfolio, with the company’s combined ratio reaching 129% in the first three quarters of 2015, following combined ratios of 127% and 118% in 2014 and 2013. Additionally, increased volatility in regional equity markets during 2015 has limited the company’s ability to compensate the poor insurance results with investment gains.
Watania generated a loss of AED27.5 million (US$7.5 million) in the first three quarters of 2015. Accumulated losses have decreased shareholders’ equity from AED150 million at incorporation in 2011 to AED92.7 million at 30 September 2015. Strong net premium growth, combined with capital erosion, has significantly reduced the company’s risk-adjusted capitalisation, although this is expected to remain at a level supportive of the ratings at year-end 2015.
Capital and surplus has fallen below the AED100 million minimum capital requirement. Moreover, the demands of high growth have impacted the company’s liquidity position, with Watania’s liquid assets to net takaful liabilities ratio reducing from 275% to 110% during the first three quarters of 2015.
Furthermore, Watania’s CEO and CFO have left the company during the year, representing a loss of talent and strategic direction, which potentially creates an interim risk to the company’s operations. Watania is in the process of appointing a new CEO.
Given the current strain on Watania’s profitability and balance sheet, A.M. Best will look to understand the near-term steps that the company is taking to stabilise its operations and capital position.
AED1 = US$0.27