A.M. Best has assigned a financial strength rating of B++ (Good) and an issuer credit rating of “bbb+” to Abu Dhabi National Takaful Company P.S.C. (ADNTC) (United Arab Emirates). The outlook assigned to both ratings is stable.
The ratings of ADNTC reflect its excellent risk-adjusted capitalisation, strong underwriting performance and sound risk management. Offsetting rating factors are its modest business profile and the accumulated deficit within its policyholders’ fund.
Although commanding a modest profile in the United Arab Emirates (UAE) insurance market, ADNTC has a more substantial position within the local niche takaful (an Islamic compliant form of insurance) market segment and has achieved significant growth in gross written contributions over recent years. ADNTC’s moderate underwriting leverage allows for an excellent level of risk-adjusted capitalisation, which when factoring in the company’s business plans, is expected to remain at a robust level over the medium term.
Despite ADNTC’s rapid growth, underwriting results have been maintained at a strong level, with a loss ratio lower than the overall market. Between 2010 and 2013, ADNTC almost doubled its gross written contributions from AED 150 million (USD 41 million) to AED 272 million (USD 74 million). At the same time the company improved its adjusted combined ratio, substituting actual expenses for Wakala fees (management fee charged by shareholders to policyholders) year-on-year from 85% to 68%. Furthermore, ADNTC’s overall earnings have been strong and the company has generated a 5-year average return on capital and surplus of 15% (2013: 19.6%). Offsetting ADNTC’s strong underwriting and overall financial performance in recent years is the deficit that has accumulated within its takaful fund. Although a high Wakala fee burden in 2012 and 2013 resulted in the generation of a significant policyholder deficit, ADNTC is expecting to reduce this deficit over the coming years and aims to establish a more appropriate balance of earnings between the shareholders’ and policyholders’ funds.
With support from an international third party consultant, ADNTC has enhanced its risk management framework over the past two years. The company has modeled its risk-based capital requirements via an in-house capital model and assessed its exposure to natural perils. ADNTC’s risk management capabilities are adequate for its risk profile and more advanced than many companies of a similar nature in the UAE and in regional markets.
Positive rating movement could result from an improvement in performance of the company's takaful fund, coupled with an enhanced competitive market position. Negative rating movement could result from a continued weak performance of the company's takaful fund and/or a material reduction in its risk-adjusted capitalisation.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating [..].
This rating announcement has been issued by A.M. Best Europe – Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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