Noor Takaful General receives 'B' credit rating
A.M. Best has assigned the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb” to Noor Takaful General PJSC (NTG) (United Arab Emirates), and the outlook assigned to these Credit Ratings (ratings) is stable.
NTG is a subsidiary of Noor Investments Group L.L.C., a non-operating holding company domiciled in the United Arab Emirates (UAE).
The ratings reflect NTG’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 ratings also factor in the group’s exposure to the moderate levels of political and financial system risk associated with operating exclusively within the UAE.
NTG’s balance sheet strength assessment has shown a material improvement during 2017. Following a capital injection of AED 32.5 million in the fourth quarter of 2017, NTG’s risk-adjusted capitalisation, as assessed by Best’s Capital Adequacy Ratio model, has strengthened significantly. Furthermore, by liquidating unrated sukuks and mutual funds and investing the new capital in cash, the company has reduced investment risk and enhanced its liquidity position.
Whilst prospective risk-adjusted capitalisation is expected to gradually decline as the company expands its profile in the local market, A.M. Best anticipates NTG’s capital position to remain at the strongest level. Offsetting rating factors include the company’s moderate reliance on reinsurance and a concentrated investment portfolio that is restricted to the UAE. The injection of capital, coupled with the adjustments to the company’s asset profile, has improved NTG’s minimum capital requirement, solvency capital requirement and minimum guaranteed fund in line with regulatory limits. However, there still remains uncertainty regarding the solvency of the Takaful fund, for which the company is in dialogue with the regulator.
A.M. Best’s marginal assessment of NTG’s operating performance is underpinned by its history of weak underwriting results, as demonstrated by the five-year (2012-2016) average non-life combined ratio of approximately 116 per cent (as calculated by A.M. Best). Over this period, investment yields generally have been insufficient to cover poor underwriting performance with the company generating operating losses in four out of the last five years. NTG’s recently appointed management team has taken proactive steps to improve performance, particularly on the motor insurance business line. The company’s third-quarter results for 2017 indicate significant progress towards achieving underwriting profitability.
NTG operates as a small non-life Takaful insurer in the UAE, utilising brokers as a key distribution channel. The company was established in 2008 and has struggled to establish a presence in the highly competitive general insurance market. As a result the company has experienced volatility in its gross written contributions with overall premiums decreasing by three per cent to AED 70 million in 2016 following 34 per cent growth in 2015. NTG aims to expand its profile through targeting the retail insurance sector via direct sales channels.