A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Abu Dhabi National Takaful Company P.S.C. (ADNTC) (United Arab Emirates).
The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect ADNTC’s balance sheet strength, which A.M. Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
A.M. Best considers the regulatory environment in the UAE to be sufficiently strong, given the protection it provides to policyholders. Consequently, ADNTC’s risk-adjusted capitalisation is assessed on a combined basis, integrating policyholders’ and shareholders’ funds. The company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed at the strongest level and prospective capitalisation is expected to be sufficient to support the company’s business plans. An offsetting rating factor is ADNTC’s moderate reliance on reinsurance. However, the credit risk is mitigated by the company’s reinsurance panel, which is considered to be of good credit quality. Whilst the company’s asset base is concentrated in the UAE, it operates a low-risk investment portfolio that supports an excellent liquidity position.
ADNTC reported profit before tax of AED 54 million for 2017, equivalent to a return on equity of 18.5 per cent. The company’s overall earnings are driven by its underwriting operations, which have generated strong results and historically have exhibited a relatively low level of volatility. The company’s five-year average combined ratio is excellent at 71.6 per cent (67.3 per cent in 2017), with the majority of profit derived from its family takaful products. A.M. Best expects the company’s strong operating performance to continue, given its effective underwriting controls and experienced management team. Despite a small decrease in gross written contributions, the company’s profit at half-year 2018 increased by 7.3 per cent to AED 37 million, compared with the same period in 2017.
The company has a modest profile in the UAE insurance market. Nevertheless, ADNTC benefits from a strong reputation as one of the most successful takaful companies in the market, which is complemented by its strong relationships with local Islamic banks. Following the strong operating performance of the company, ADNTC has reduced its dependence on Qard Hasan (i.e., an interest free loan from shareholders’ fund to the policyholders’ fund) turning the life technical account into a surplus position. Furthermore, in 2018, the company is proposing a distribution of policyholder surplus, a first among UAE takaful operators, which should provide the company with a unique value proposition for customers. Corporate medical and family takaful lines of business drove strong growth of 16.5 per cent in 2017, with gross written contributions climbing to AED 374 million.