LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb+” of National Takaful Company (Watania) PJSC (Watania) (United Arab Emirates). The outlook of the FSR remains stable, while the outlook of the Long-Term ICR remains negative.
The Credit Rating (rating) actions reflect Watania’s ability to implement its business strategy successfully during 2016, following a change in senior management, which has brought some stability to the company’s operations. Offsetting rating factors include the company’s weak operating performance, limited business profile, and the highly competitive market environment. The negative outlook of the Long-Term ICR reflects the execution risk associated with the company’s growth plans and profitability targets.
Since inception in 2011, Watania has a track record of weak earnings, largely stemming from poor technical performance, with accumulated losses eroding shareholders’ equity to approximately AED 79 million at year-end 2016. These results have led Watania’s liquidity ratio to fall to 67% in 2016 from a high of 289% in 2012. However, under the new management, Watania has embarked on strategic initiatives to stabilise its operations, adopting stricter underwriting controls and tighter claims management. Underwriting performance has improved considerably following the cancellation of loss-making accounts and cost efficiencies achieved through synergies with Watania’s sister company, Al Madina Insurance Company SAOG. The company’s combined ratio rallied to under 95% after producing weak ratios in excess of 120% in 2014 and 2015. Additionally, the company’s conservative investment portfolio produced an investment yield of 2.9%, enabling Watania to achieve break-even profitability in 2016.
Watania’s risk-adjusted capitalisation remains at an adequate level as measured by Best’s Capital Adequacy Ratio (BCAR). However, the company currently is very close to breaching UAE Company Law whereby a company must hold a minimum amount of shareholder equity equal to 50% of paid up capital (AED 150 million). Watania is seeking to strengthen its capital position mainly through internal capital generation, with no dividend payments expected over the short term until profitability materially improves.
The company has a limited business profile within its domestic market, writing approximately AED 200 million in gross contribution revenue in 2016. Reduction of business volumes from poor performing accounts have been replenished through price increase and new business generated through a wider distribution network. A.M. Best expects the full effect of these strategies to be realised over the longer term, although the company will be challenged to achieve scale and profitability as the market remains highly competitive.
A.M. Best deviates from its Analyzing Insurance Holding Company Liquidity and Insurance Holding Company and Debt Ratings methodologies in its analysis of Watania, as no financial information is available for the ultimate parent (MB UAE Investments LLC) of Watania. Mitigating rating factors are Watania’s independence from the group with limited interrelated transactions and no evidence of financial strain imposed by the parent. Furthermore, Watania is listed on the Abu Dhabi stock exchange and must comply with requirements set by the UAE Insurance Authority rules and UAE Company Law. MB UAE Investments LLC owns 51% of Watania.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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