AM Best has revised the outlooks to stable from positive and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of "a-" (Excellent) of Abu Dhabi National Takaful Company P.S.C. (ADNTC) (United Arab Emirates).
The Credit Ratings (ratings) reflect ADNTC's balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
The revision of the outlooks to stable reflects AM Best's expectation that ADNTC's rating fundamentals will remain commensurate with their current assessments over the near to medium term.
ADNTC has a track record of strong operating performance, with a five-year (2016-2020) weighted average return on equity of 17%. Combined life and non-life underwriting returns grew at a compound average growth rate of 22% over the period from 2015 to 2019, reaching AED 70.3 million in 2019. However, underwriting returns contracted in 2020 to AED 15.1 million, with challenging operating and macroeconomic conditions in the UAE contributing to weaker sales and underwriting margins in the company's family (life) takaful business. This life insurance portfolio has historically been a core driver of the company's underwriting profitability. ADNTC has taken a series of actions, including the restructuring of its reinsurance programme and changes to product features, which AM Best expects to contribute toward the maintenance of strong underwriting performance over the coming years.
The company has a niche and established position in the UAE insurance market as a successful takaful operator, which is supported by its strong relationships with local Islamic banks. Following several years of annualised double-digit top line growth, the company in 2020 experienced a 13% contraction in gross written contributions (GWC) to AED 425.3 million. The effect was more pronounced on the company's family takaful portfolio than on its general takaful portfolio, which remained stable over the year. In the overall UAE insurance market (including takaful and conventional insurers), the company maintains a midtier positioning in terms of total business written.
AM Best considers the takaful regulations in the UAE to be sufficiently strong, given the protection it provides to policyholders. ADNTC's risk-adjusted capitalisation on a combined basis, as measured by Best's Capital Adequacy Ratio (BCAR), is at the strongest level. ADNTC undertook a rebalancing of its investment portfolio during 2020, increasing its exposure to equity and real estate investments. While these actions have increased investment risk, ADNTC maintains a buffer over the threshold for the strongest BCAR assessment. AM Best expects prospective risk-adjusted capitalisation to remain comfortably above the strongest threshold as the company executes its business plan. ADNTC has a moderately high dependence on reinsurance, which has increased over 2020 following changes to the reinsurance structure for its family takaful business. However, the associated credit risk is managed through the use of a reinsurance panel of sound financial strength.
This press release relates to Credit Ratings that have been published on AM Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best's Credit Ratings, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings Assessments.
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Contacts:
Romeo Berti, ACA, CMA
Financial Analyst
+44 20 7397 0267
romeo.berti@ambest.com
Alex Rafferty, ACA
Associate Director, Analytics
+44 20 7397 0312
alex.rafferty@ambest.com
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com
Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com
