Ratings agency AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a” of Qatar Insurance Company and its subsidiary Qatar Reinsurance.
AM Best says the changes reflect QIC’s balance sheet strength, which it categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
In addition, the revision of the outlooks to negative largely reflects pressure on AM Best’s current operating performance assessment of strong due to underperformance emanating from the group’s non-Middle East insurance operations (QIC Global).
Am Best notes that QIC Global has experienced considerable staff turnover and a fluctuating business strategy, at the same time as pursuing aggressive growth in a soft market.
In addition, results have been adversely impacted in recent years (2017 to 2019) by natural catastrophe losses and Ogden rate adjustments in the U.K. motor segment.
As a consequence, the group has produced a five-year (2014-2018) average combined ratio of 101.2% and AM Best’s expects the group to report a combined ratio in excess of 100% to be reported for 2019.
In addition, the group has a $316 million receivable due from the Markerstudy Group before May 2020. Whilst the group maintains sufficient capital to absorb a default on this loan, any impairment would represent a material loss to earnings.
AM Best says pressure on QIC’s underwriting earnings highlight governance and underwriting control deficiencies in the group’s decision-making process.
Although there has been improvement in QIC’s ERM framework in recent years, it is understood that progress has been slower than expected.
Further development of the company’s ERM framework will be necessary to support the evolving complexity of its operations.
The company’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and benefits from the company’s large capital base of QAR 7.7 billion (USD 2.1 billion).
Am Best adds that QIC’s excellent financial flexibility has been highlighted by the its ability to successfully access capital markets in recent years.
In AM Best’s opinion, these factors, in addition to strong internal capital generation and long-term capital support from shareholders, provide backing for QIC’s strategic initiatives, including those related to inorganic growth.
The company’s investment risk profile has reportedly improved in recent years as a result of higher allocations to cash, deposits and liquid fixed income instruments. As at year-end 2018, these assets accounted for 77% of the investment portfolio.