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, notes AM Best.
The international credit rating agency says this as it revises outlooks to positive from stable and affirms the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of the company.
The credit ratings reflect ADNTC’s balance sheet strength, which AM Best 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 AM Best’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.
AM Best considers the 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 predominately 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 is 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 gross written contributions, the company’s profit increased by 21.0% to AED44.8m, compared with the same period in 2018.
AM Best expects the company’s strong operating performance 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 the Qard Hasan (i.e., an interest-free loan from the shareholders’ fund to the policyholders’ fund), 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. AM Best expects this to provide a unique value proposition for customers and thereby further enhancing its business profile in the region.