Global financial services ratings agency A.M. Best has downgraded the credit ratings of Qatar General Insurance & Reinsurance Company QPSC, citing material deterioration in the company’s risk-adjusted capitalisation.
A.M. Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A-(Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” from “a+” of Qatar General Insurance & Reinsurance Company QPSC (QGIRC).
At the same time, the outlook of the FSR has been revised to stable from negative, while the outlook of the Long-Term ICR remains negative.
According to the ratings agency, the downgrades reflect material deterioration in the firm’s risk-adjusted capitalisation to a very strong level from a strongest level, as measured by Best’s Capital Adequacy Ratio. A.M. Best notes that the decline in capitalisation is a result of a reduction in available capital after the insurer and reinsurer experienced operating losses in each of the past three financial years.
Negative earnings within its insurance operations combined with fair value losses from its real estate holdings, pushed the firm to a loss in 2019. Furthermore, notes the ratings agency, the re/insurer revised its approach to the valuation of its sizeable investment property portfolio, which led to adverse restatements in both 2017 and 2018. The result of this led the firm to report material operating losses in these years, with the group previously reporting a profit for these financial years.
“Despite market-to-market losses, QGIRC’s investment property portfolio continues to dominate the group’s balance sheet, representing 66% of total investments at year-end 2019 and is an offsetting factor to the group’s balance sheet strength,” continues A.M. Best.
In an effort to de-risk its balance sheet away from real estate exposure, the company’s new senior management has implemented a number of initiatives. However, these come with execution risk given the challenges within the real estate market in Qatar.
