A.M. Best has revised the outlook to stable from negative for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B (Fair) and the Long-Term ICR of “bb+” of National Takaful Company (Watania) PJSC (Watania) (United Arab Emirates).
The outlook of the FSR remains stable.
The Credit Ratings (ratings) reflect Watania’s balance sheet strength, which A.M. Best categorises as strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The revision of the Long-Term ICR outlook reflects Watania’s ability to successfully execute its business strategy, which has brought stability to the company’s operations and underwriting profitability.
Since inception in 2011, Watania has had a track record of weak earnings, largely stemming from poor technical performance, with accumulated losses eroding shareholders’ equity to a level close to insolvency under UAE Company Law.
However, following a change in senior management in 2016, Watania has embarked on strategic initiatives to stabilise its operations, adopting stricter underwriting controls and tighter claims management. Underwriting performance has improved considerably following the cancellation of loss-making accounts and cost efficiencies achieved through synergies with Watania’s sister company, Al Madina Insurance Company SAOG.
The company’s combined ratio rallied to under 100 per cent in 2017 after producing ratios more than 100 per cent for the period 2011 to 2016. Additionally, the company’s conservative investment portfolio produced an investment yield of 3.2 per cent, enabling Watania to achieve a good level of profitability (AED 7.6 million) in 2017.
Watania’s balance sheet strength remains at a strong level; however, the company remains close to breaching UAE Company Law, whereby a company must hold a minimum amount of shareholder equity equal to 50 per cent of paid-up capital (AED 150 million). Watania has improved its shareholder equity over the past year and is seeking to continue strengthening its shareholder equity mainly through internal capital generation, with any dividend payments contingent on profitability levels remaining in line with 2017 results.
The company has a limited business profile within its domestic market, writing approximately AED 271 million in gross contribution revenue in 2017. Reduction of business volumes from poor performing accounts have been replenished through price increases and new business generated through a wider distribution network. A.M. Best expects the full effect of these strategies to be realised over the longer term, although the company will be challenged to achieve scale and profitability as the market remains highly competitive.
A.M. Best deviates from its Available Capital and Holding Company Analysis methodology in its analysis of Watania, as no financial information is available for the ultimate parent (MB UAE Investments LLC) of Watania. Mitigating rating factors are Watania’s independence from the group with limited interrelated transactions and no evidence of financial strain imposed by the parent. Furthermore, Watania is listed on the Abu Dhabi stock exchange and must comply with requirements set by the UAE Insurance Authority rules and UAE Company Law. MB UAE Investments LLC owns 51 per cent of Watania.