Expectations are that Abu Dhabi National Takaful Company (ADNTC) will enhance its position in its domestic market whilst continuing to outperform takaful and conventional insurance peers as it executes its business plan, says AM Best in a report.
The international credit rating agency affirms ADNTC's Financial Strength Rating of A- (Excellent) and Long-Term Issuer Credit Rating of “a-”. The outlook of these credit ratings is positive.
Balance sheet strength
The 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.
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, is at the strongest level, on a combined basis, and AM Best expects prospective capitalisation to be sufficient to support the company’s business plans.
An offsetting factor in AM Best’s balance sheet assessment 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.
ADNTC has exhibited strong and consistent operating performance despite highly competitive market conditions, as evidenced by its five-year (2015-2019) average combined ratio of 66.2% and return on equity of 17.7%. Technical performance improved for the third consecutive year in 2019, with the company generating a combined ratio of 61.9% (as calculated by AM Best). The family takaful portfolio continues to be the main contributor to technical results.
AM Best expects earnings to remain robust prospectively, although top-line growth may be challenged in the near term due to weaker sales in the family takaful portfolio as a result of the economic downturn related to the COVID-19 pandemic.
The company has a modest, albeit growing, profile in terms of business written in the UAE insurance market.
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. 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 being in a surplus position.
2019 marked the second consecutive year the company distributed surplus to eligible policyholders, after being the first takaful operator in the UAE to do so in 2018. AM Best expects this to enhance its value proposition for customers thereby strengthening its business profile in the region.