Qatar Islamic Insurance Group (QIIG) is expected to continue to generate strong operating returns, with the retention of earnings further enhancing the balance sheet strength over the short to medium term, says AM Best.
The international credit rating agency says that based on this assessment, it has revised the outlooks for the insurer to positive from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of QIIG.
The ratings reflect QIIG’s strong balance sheet strength, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM), says AM Best.
QIIG utilises a hybrid takaful model, whereby the shareholders’ fund charges the policyholders’ fund (PHF) a wakala fee based on gross written contributions (GWC) and a mudaraba fee based on investment income. QIIG’s ability to accumulate surpluses within the PHF, whilst regularly distributing surplus back to policyholders, supports the sustainability of the takaful model.
The group is less reliant on reinsurance compared with its regional peers and the programme is placed with a well-rated reinsurance panel, notes AM Best.
QIIG maintains sufficient liquidity to support its insurance operations. However, it is exposed to illiquid assets in the form of real estate and associate investments, which accounted for approximately 52% of total investments as at the end of 2019.
AM Best expects the group to continue to move into alignment with regulatory requirements with regard to its investment concentrations. Capital buffers provide some cushion against potential investment losses due to current volatility in global financial markets.
QIIG has a track record of strong operating and technical profitability, with net profits increasing by 15.3% in 2019 to QAR73m ($20m), equivalent to a return on equity of 14.1%. Profitability is underpinned by solid and stable underwriting performance, highlighted by a strong five-year average (2015-2019) combined ratio of 77.2%.
Whilst generally there has been a good balance of earnings between technical and investment income, investment returns have declined over the past five years due to the volatile investment environment in Qatar. QIIG reported contributions growth of 6% in 2019, with GWC of QAR405m.
QIIG is geographically concentrated, writing all of its business in its domestic market, Qatar, where it maintains a niche market position as an established provider of Shariah-compliant products. The group’s strong reputation in Qatar benefits from its track record of distributing surpluses back to its policyholders. Moreover, the group is a member of the National Insurance Consortium, which provides QIIG with access to large government infrastructure contracts.