AM Best Upgrades Credit Ratings of Qatar Islamic Insurance Group Q.P.S.C.

AM Best has upgraded the Financial Strength Rating to A- (Excellent) from B++ (Good) and the Long-Term Issuer Credit Rating to "a-" from "bbb+" of Qatar Islamic Insurance Group Q.P.S.C. (QIIG) (Qatar). The outlook of these Credit Ratings (ratings) has been revised to stable from positive.

The ratings reflect QIIG's balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

The rating upgrades reflect continued strengthening of QIIG's capital base through the retention of earnings as the company continues to demonstrate strong operating returns. In 2020, capital and surplus grew by 4.5% to reach QAR 396 million (QAR 591 million including policyholders' fund). 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 Mudaraba 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 the takaful model.

QIIG's balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR). The group is less reliant on reinsurance compared with its regional peers, and the programme is placed with a well-rated reinsurance panel. QIIG maintains sufficient liquidity to support its insurance operations; however, it is exposed to illiquid assets in the form of real estate and investments in associates, which accounted for approximately 51% of total investments as at year-end 2020. AM Best expects the group to continue to move into alignment with regulatory requirements with regard to its investment concentrations.

QIIG has a track record of strong operating and technical profitability, continuing to generate solid net profits in 2020 of QAR 76 million, equivalent to a return on equity of 13.6%. Profitability is underpinned by solid and stable underwriting performance, highlighted by a strong five-year average (2016-2020) combined ratio of 71.6%. Whilst generally there has been a good balance of earnings between technical and investment income, investment returns have declined over the past five years due to the volatile investment environment in Qatar.

QIIG is concentrated geographically, writing all of its business in its domestic market, where it maintains a niche market position as an established provider of Shari'a-compliant products. The group's strong reputation in Qatar benefits from its track record of distributing surpluses back to its policyholders. Moreover, the group is a member of the National Insurance Consortium, which provides QIIG with access to large government infrastructure contracts. QIIG reported a 1% decline in contributions in 2020, writing GWC of QAR 401 million.

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