A.M. Best affirms ratings of National Takaful Company (Watania) PJSC

23/03/2015 06:39 AST

A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of "bbb-" of National Takaful Company (Watania) PJSC (Watania) (United Arab Emirates). The outlook for both ratings remains stable.

The ratings reflect Watania's strong prospective risk-adjusted capitalisation and developing market profile. Offsetting rating factors include the weak underwriting performance of Watania's motor portfolio and the execution risk associated with its expansion plan in a highly competitive domestic insurance market.

In September 2014, the majority (51 per cent) of Watania's shares were purchased by MB UAE Investments, which is 100 per cent owned by the shareholders of MB Holding, Oman. Additionally, a strategic partner; Al Madina Insurance Company SAOG (Oman) acquired 9.54 per cent of the company. There has been no direct impact on the strategy of Watania following the change in ownership.

Watania benefits from strong risk-adjusted capitalisation with sufficient capital to support its expansion plans. Risk-adjusted capitalisation benefits from a low level of retained underwriting risk supported by a strong reinsurance panel and a conservative investment strategy focused on fixed-income securities. Watania's capital position is insulated from potentially onerous dividend requirements by the UAE regulatory environment, which limits dividend distribution until policyholder deficit has been recouped from future earnings.

Watania's gross written contributions were ahead of budget for 2014 at AED 191 million ($52 million), mainly driven by strong growth in medical business. However, very weak claims experience on the motor business line depressed underwriting profitability, with the motor portfolio producing a 120 per cent loss ratio in 2014. Despite the strong underwriting performance in other business segments, motor was the most significant contributor to the company's underwriting loss of AED 20.5 million.

Watania remains a small company in the highly competitive UAE insurance market. The challenge of achieving a stronger market profile, while writing profitable business, represents a significant level of execution risk.

Despite Watania achieving a good loss ratio of 74 per cent, its expense ratio remained high at 53 per cent in 2014.

Watania's enterprise risk management is viewed as developing. The company has a financial analysis tool which will be used to monitor capital adequacy and shape business plans as well as reinsurance optimisation and pricing strategy.

The ratings are well-placed at the current level. Upward or downward rating movement will be tied to Watania's ability to successfully execute its business plan.

CPI Financial