AM Best Revises Outlooks to Negative for Qatar General Insurance & Reinsurance Company QPSC
The revised outlooks reflect the decline in QGIRCs operating performance, which has placed pressure on AM Bests current assessment of strong.
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Qatar General Insurance & Reinsurance Company QPSC (QGIRC) (Qatar).
The Credit Ratings (ratings) reflect QGIRC’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.
The revised outlooks reflect the decline in QGIRC’s operating performance, which has placed pressure on AM Best’s current assessment of strong. In recent years, and particularly in 2019, the group’s technical and operating earnings have experienced deterioration, falling below historical averages and regional peers. QGIRC’s earnings have demonstrated its vulnerability to Qatari real estate markets, with notable volatility driven by adverse fair value movements. The group has implemented initiatives to improve its operating performance; however, a level of execution risk still exists and is encumbered further by the group’s strategic expansion into selected global reinsurance markets.
The group’s operating performance generated a five-year average return on equity of 8.6% (2014-2018), and was driven principally by returns derived from its investment operations. Earnings over this period benefited materially from fair-value gains on its real estate portfolio, offsetting underwriting losses reported in two of the last five years. Technical performance experienced partial improvement in recent years following remedial action taken to reduce the company’s loss ratio; however, rising expenses have offset this improvement. During the first nine months of 2019, QGIRC reported materially reduced net profits of QAR 6 million, compared with QAR 70 million in the same period of 2018, following a series of large loss events and adverse fair-value movements. For the first nine months of 2019, QGIRC’s combined ratio exceeds 100%. Given the adverse valuation trends in the Qatari real estate market, and QGIRC’s asset exposures, further downward pressure on net profits is expected.
QGIRC’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 despite declining in recent years. The balance sheet strength assessment benefits from high levels of liquidity to sustain its insurance operations and low premium leverage. QGIRC’s balance sheet strength is offset by its concentrated investment portfolio, with significant exposure to real estate assets, accounting for approximately 72% of total investments at year-end 2018. Despite introducing the group’s risk-adjusted capitalisation to significant volatility, large capital buffers provide some cushion against potential investment losses. AM Best expects management to actively manage its capital position to ensure prospective risk-adjusted capitalisation remains at the strongest level.
QGIRC writes a diverse book of business across many product lines, providing conventional and Takaful insurance (via a separate subsidiary). On a consolidated basis, QGIRC commands a strong position within its domestic market, reporting gross written premiums of QAR 745 million in 2018. The group remains highly concentrated geographically to Qatar; however, QGIRC has implemented strategic initiatives to expand geographically through the writing of reinsurance in selected global markets. The resulting execution risk is mitigated partially by the low levels of premium retention on new business and the support of its retrocession partners.
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