AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “A-” (Excellent) of Qatar Islamic Insurance Group QPSC (QIIG) (Qatar). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect QIIG’s balance sheet strength, which AM Best assesses as very strong, its strong operating performance, limited business profile and appropriate enterprise risk management.
QIIG employs a hybrid takaful model, whereby the shareholders’ fund charges the policyholders’ fund (PHF) a Wakala fee based on gross written contributions (GWC) and a Mudarabah 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 its takaful model.
QIIG’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the most substantial level at year-end 2022, as measured by Best’s Capital Adequacy Ratio (BCAR). It is expected to remain comfortably at this level over the medium term.
Supporting the balance sheet strength assessment is QIIG’s consistent demonstration of internal capital generation. In 2022, the company reported capital and surplus of QAR 456.3 million (US$126.1 million), growing 8.3 per cent compared with 2021 (5.7 per cent growth when including the PHF to QAR 701.2 million [US$193.8 million]).
While maintaining sufficient liquidity to support its insurance operations, QIIG’s investments portfolio continues to carry exposure to higher-risk real estate assets and associates, accounting for 40 per cent of its total investments as of year-end 2022, albeit reducing in recent years.
QIIG is moderately dependent on reinsurance, as the group cedes a high proportion of its significant commercial risks.
QIIG’s ability to generate strong operating returns is demonstrated by its five-year weighted average return-on-equity ratio of 13.8 per cent (2018-2022). Profitability is driven mainly by QIIG’s solid and stable technical results, which have generated positive returns in the last 10 years.
The company’s earnings have been moderately supported by investment income; however, investment yields have experienced some volatility in recent years driven by fair value losses arising on real estate and the impairment of investments in associates.
QIIG holds a niche position within its domestic insurance market as an established provider of Sharia-compliant products. In 2022, QIIG reported a nine per cent increase in contributions compared with 2021, writing GWC of QAR 467.3 million (US$129.1 million).
Whilst the group looks to expand its geographical presence, operations remain concentrated in Qatar, where it maintains a strong reputation benefiting from its track record of distributing surpluses back to its policyholders.