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May 2020

UAE: Abu Dhabi National Takaful expected to outperform competitors

Source: Middle East Insurance Review | Oct 2019

Abu Dhabi National Takaful Company (ADNTC) benefits from a solid reputation as one of the most successful takaful operators in the market, which is complemented by its strong relationships with local Islamic banks, said AM Best.
The rating agency has revised ADNTC’s outlook to positive from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-”.
The credit ratings reflect ADNTC’s balance sheet strength, which the rating agency categorises as very strong, as well as its strong operating performance, limited business profile, and appropriate enterprise risk management.
The revision of the outlooks to positive reflects the rating agency’s expectation that ADNTC will enhance its position in its domestic market whilst continuing to outperform takaful and conventional insurance peers as it executes its business plan.
The agency considers takaful regulations in the UAE to be sufficiently strong, given the protection it provides to policyholders. Consequently, ADNTC’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is well in excess of the strongest threshold, on a combined basis, and prospective capitalisation is expected to be sufficient to support the company’s business plans.
An offsetting rating factor is ADNTC’s moderate reliance on reinsurance. However, the credit risk is mitigated by the company’s reinsurance panel, which is considered to be of good credit quality. Whilst the company’s asset base is concentrated in the UAE, it holds a low-risk investment portfolio that is considered highly liquid and has one of the lowest balance of debtors in the market.
ADNTC reported profit before tax of AED68.3m ($18.6m) for 2018, equivalent to a return on equity of 20.1%. The company’s overall earnings are driven predominantly by its underwriting operations, which have generated strong results and historically have exhibited a relatively low level of volatility.
The company’s five-year (2014-2018) average combined ratio was excellent at 69.9% (63.8% in 2018), with the majority of profit derived from its family takaful products.
At half-year 2019, despite double-digit growth in GWC, the company’s profit increased by 21.0% to AED44.8m, compared with the same period in 2018.
The company’s strong operating performance is expected to continue, given its effective underwriting controls and experienced management team.
Given its track record of strong operating performance, ADNTC has been reducing its dependence on qard hasan, with the life technical account in a surplus position. In 2018, the company distributed AED4.4m surplus to eligible policyholders, making it the first takaful operator in the UAE to distribute surplus. The rating agency expects this to provide a unique value proposition for customers and thereby further enhancing its business profile in the region. M 
AED1 = $0.27
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