AM Best affirms financial strength, issuer credit ratings on QISI

International credit rating agency has affirmed the financial strength rating of A- (excellent) and the long-term issuer credit rating of “A-” (excellent) of Qatar Islamic Insurance Group (QISI). The outlook of these credit ratings is "stable".The ratings reflect QISI'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 risk cover provider employs a hybrid takaful model, whereby the shareholders’ fund charges the policyholders’ fund (PHF) a Wakala fee based on gross written contributions (GWC) and a Mudaraba fee based on investment income.Its ability to accumulate surpluses within the PHF, whilst regularly distributing surplus back to policyholders, supports the sustainability of its takaful model.The insurer's balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the strongest level at year-end 2021, as measured by Best’s capital adequacy ratio (BCAR), and is expected to remain at the strongest level over the medium term.Supporting the balance sheet strength assessment is the insurer's consistent demonstration of internal capital generation, according to the rating agency.Capital and surplus grew by 7.3% in 2021 to QR424.8mn (10.3% growth including the policyholders’ fund to QR652.3mn.While QISI maintains sufficient liquidity to support its insurance operations, it has material holdings of illiquid assets in the form of real estate and investments in associates, which accounted for about 45% of its total investments as at year-end 2021.The insurer is moderately dependent on reinsurance, as the group cedes a high proportion of its large commercial risks.QISI reported a net profit of QR80.1mn in 2021, equivalent to a return on equity of 12.9%, demonstrating its ability to generate strong operating returns. Profitability is driven mainly by its strong and stable technical results, demonstrated by a five-year (2017-21) weighted average combined ratio of 66.7%.Its investment yields have been modest in recent years, driven by fair value losses arising on real estate and the impairment of investments in associates.QISI holds a niche position within its domestic insurance market, as an established provider of Shariah-compliant products.In 2021, QISI reported a 7% increase in contributions compared with 2020, writing GWC of QR428.6mn.The group’s operations are concentrated in Qatar, where it maintains a strong reputation benefiting from its track record of distributing surpluses back to its policyholders.Moreover, the group is a member of the National Insurance Consortium, which provides QISI with access to large government infrastructure contracts.