AM Best changes Qatar General outlook to negative due to adverse earnings trends

Ratings agency AM Best has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) of Qatar General Insurance & Reinsurance Company QPSC (QGIRC).

QGIRC writes a diverse book of business across many product lines, providing conventional and Takaful insurance through a separate subsidiary.

The revised outlook reflect the decline in QGIRC’s operating performance, the ratings agency said. In recent years, and particularly in 2019, the group’s technical and operating earnings have experienced deterioration, falling below historical averages and regional peers.

According to AM Best, QGIRC’s earnings have demonstrated its vulnerability to Qatari real estate markets, with notable volatility driven by adverse fair value movements. The group has implemented initiatives to improve its operating performance; however, a level of execution risk still exists and is encumbered further by the group’s strategic expansion into selected global reinsurance markets.

The group’s operating performance generated a five-year average return on equity of 8.6 percent (2014-2018), and was driven principally by returns derived from its investment operations. During the first nine months of 2019, QGIRC reported materially reduced net profits of QAR 6 million ($1.65 million), compared with QAR 70 million in the same period of 2018, following a series of large loss events and adverse fair-value movements. For the first nine months of 2019, QGIRC’s combined ratio exceeds 100 percent.

The agency noted that given the adverse valuation trends in the Qatari real estate market, and QGIRC’s asset exposures, further downward pressure on net profits is expected.

QGIRC’s balance sheet strength is underpinned by risk-adjusted capitalisation, which, as measured by Best’s Capital Adequacy Ratio (BCAR), is consistent with the strongest assessment despite declining in recent years. The balance sheet strength assessment benefits from high levels of liquidity to sustain its insurance operations and low premium leverage.

AM Best expects management to actively manage its capital position to ensure prospective risk-adjusted capitalisation remains at the strongest level.

On a consolidated basis, QGIRC commands a strong position within its domestic market, reporting gross written premiums of QAR 745 million in 2018. The group remains highly concentrated geographically to Qatar; however, QGIRC has implemented strategic initiatives to expand geographically through the writing of reinsurance in selected global markets. The resulting execution risk is mitigated partially by the low levels of premium retention on new business and the support of its retrocession partners, said AM Best.