AM Best Affirms Credit Ratings of National Takaful Company (Watania) PJSC

LONDON--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of "bb+" of National Takaful Company (Watania) PJSC (Watania) (United Arab Emirates) (UAE). The outlook of these Credit Ratings (ratings) is positive.

The ratings reflect Watania’s balance sheet strength, which AM Best categorises as strong, as well as its marginal operating performance, limited business profile, and marginal enterprise risk management (ERM). The positive outlooks reflect the company’s improved operating performance in recent years following the successful execution of its business strategy set by the new management team.

Since inception in 2011, Watania had reported weak earnings, largely stemming from poor technical performance, with accumulated losses eroding shareholders’ equity. However, following a change in senior management in 2016, Watania embarked on strategic initiatives to stabilise its operations, adopting stricter underwriting controls and tighter claims management. Furthermore, although Watania operates independently, it benefits from cost efficiencies achieved through reinsurance synergies with its sister company, Al Madina Insurance Company SAOG. Since the change in senior management, technical performance has been trending positively, with the company's 2019 combined ratio of 95.4% well below its five-year average (2015-2019) of 104.1%. Consequently, overall earnings also have improved considerably, reaching AED 12.7 million in 2019, translating into a healthy return on equity of 13.8%. The company’s investment portfolio continues to contribute positively to overall profitability, producing an investment yield of 3.0% in 2019.

AM Best assesses Watania’s balance sheet strength as strong, underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level. Watania has strengthened its shareholders’ equity, mainly through internal capital generation. The company’s balance sheet benefits from a well-rated reinsurance panel, the absence of leverage, and a highly liquid investment portfolio. Offsetting rating factors include the company’s small balance sheet, material exposure to higher risk asset classes, and limited financial flexibility.

The company has a limited business profile in its domestic market, having written AED 344.8 million in gross written contributions in 2019. The company operates solely in the UAE and consistent with other market participants, writes predominantly motor and medical insurance. AM Best expects Watania to continue to grow in line with its business plan, although market conditions remain challenging given the high level of competition.

AM Best assesses Watania’s ERM as marginal. Historically, the company lacked formalisation in its risk management framework, and accompanying controls and procedures. However, in 2019, Watania has undertaken steps to establish an enterprise-wide risk-aware culture and implement tools to manage its risk exposures more consistently. AM Best expects that as the company continues with its strategic transformation, management will make further meaningful enhancements to the company’s ERM framework.

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