AM Best Affirms Credit Ratings of Qatar Islamic Insurance Company Q.P.S.C.

AM Best has affirmed the Financial Strength Rating of B++ (Good)
and the Long-Term Issuer Credit Rating of “bbb+” of Qatar Islamic
Insurance Company Q.P.S.C. (QIIC) (Qatar). The outlook of these Credit
Ratings (ratings) is stable.

The ratings reflect QIIC’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
(ERM).

QIIC adopts 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. QIIC’s ability to accumulate surpluses within the PHF, whilst
regularly distributing surplus back to policyholders, supports the
sustainability of the takaful model.

QIIC’s balance sheet strength is underpinned by risk-adjusted
capitalisation, which, as measured by Best’s Capital Adequacy Ratio
(BCAR), is consistent with the strongest assessment. The balance sheet
strength assessment also benefits from high levels of liquidity to
sustain its insurance operations and a well-rated reinsurance panel. AM
Best expects prospective risk-adjusted capitalisation to benefit from
good internal capital generation.

QIIC’s balance sheet strength, however, is offset by its unsophisticated
approach to reserving and high-risk investment strategy. QIIC is exposed
significantly to illiquid assets in the form of real estate and
associate investments, accounting for approximately 55% of total
investments as at year-end 2018. Despite exposing the company’s
risk-adjusted capitalisation to significant volatility, capital buffers
provide some cushion against potential investment losses.

QIIC has a track record of strong operating and technical profitability,
highlighted by a five-year average (2014-2018) combined ratio of 77.2%
that has remained very stable over recent years. Whilst generally there
has been a good balance of earnings between technical and investment
income, a volatile investment environment in Qatar has meant investment
returns have declined over the past five years. In 2018, the company
reported net profit of QAR 63 million, equivalent to a healthy return on
equity of 12.9%.

Although the company is concentrated to its domestic market of Qatar,
QIIC maintains a niche market position as an established provider of
Shari’a-compliant products and a strong reputation that is attributable
partially to the company’s track record of distributing surpluses back
to its policyholders. Moreover, the company benefits from being a member
of the National Insurance Consortium, which provides QIIC access to
sizable government infrastructure contracts. QIIC reported strong
premium growth in 2018, with a 21% increase in GWC to QAR 382 million,
compared with 2017.

Whilst QIIC’s ERM framework is considered appropriate, AM Best has
concerns over the company’s approach to managing its investments
operations, especially given the size of illiquid assets relative to its
capital.

This press release relates to Credit Ratings that have been published
on AM 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 AM 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. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
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