AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of "bb" of Noor Takaful General PJSC (NTG) (United Arab Emirates). The outlook assigned to these Credit Ratings (ratings) is negative.
The ratings reflect NTG’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The rating actions follow the completion of AM Best’s assessment of the consolidated financial strength of Dar Al Takaful PJSC (DAT), which acquired NTG and its sister company, Noor Takaful Family PJSC in July 2020. The negative outlooks reflect the pressures that the weaker consolidated credit profile of DAT, driven by significant short-term debt leverage and servicing obligations may place on NTG’s rating fundamentals. Should the safeguards in place, in the form of regulatory requirements and governance arrangements, to ensure that NTG's financial strength is shielded from potential adverse parental influence prove not effective, resulting, for example, in excessive capital extraction from NTG, negative rating action could occur.
NTG’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the strongest level as at year-end 2019, as measured by Best’s Capital Adequacy Ratio (BCAR). Whilst AM Best expects NTG’s prospective risk-adjusted capitalisation to remain at the strongest level, it is expected to trend down over the short to medium term, driven by increased underwriting risk as business formerly written by DAT renews into NTG, and the expected dividend requirements of the parent. The balance sheet strength assessment also considers NTG’s conservative investment portfolio and its appropriate reinsurance programme placed with a panel of financially sound reinsurance partners.
Following a period of targeted growth in profitable segments, NTG’s operating performance has seen improvements year on year since 2015, generating a return on equity of 7.0% in 2019 compared with -12.3% in 2015. This trend has been driven by stronger underwriting results, with the combined ratio decreasing to 93.7% in 2019 (135.7% in 2015). Further improvements in underwriting performance were demonstrated in the first nine months of 2020, when the loss ratio improved to 38.0% (Q3 2019: 44.2%), benefiting from lower claims frequency during the COVID-19 pandemic. AM Best expects NTG’s prospective operating performance to remain supportive of the adequate assessment, inclusive of the integration of motor and general lines portfolios previously underwritten by DAT.
NTG’s limited business profile assessment reflects its market position and portfolio concentration within the UAE’s non-life takaful insurance market. Successful onboarding of DAT’s motor and general lines of business has the potential to diversify NTG’s portfolio and generate economies of scale. However, AM Best expects NTG to remain a mid-tier company in a very competitive market.
AM Best views NTG’s ERM as marginal. In recent years, the company has made significant gains in developing its risk management capabilities and formalising its ERM framework. However, AM Best considers the business combination with DAT to have elevated NTG’s overall risk profile, most notably increasing operational and execution risk.
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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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