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London – (Business Wire)–the best Abu Dhabi National Takaful Insurance Company PSC (ADNTC) (United Arab Emirates) affirmed its A- (excellent) financial strength rating and ‘a-‘ (excellent) long-term issuer credit rating. The outlook for these credit ratings (ratings) is stable.
The rating reflects ADNTC’s balance sheet strength (very strong as assessed by AM Best), as well as its strong operating performance, limited business profile and appropriate enterprise risk management.
AM Best believes that the UAE’s takaful regulations are strong enough as it provides protection for policyholders. ADNTC has the highest level of risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) on a combined basis of policyholders and shareholders’ funds. AM Best expects the company’s expected total risk-adjusted capital to continue to be sufficient to support its strategic plans, including the recently announced acquisition of the unit-linked life insurance business portfolio from Dubai Takaful and Reinsurance Company (Aman) PJSC, which remains constrained by the Regulatory approval. ADNTC’s investment strategy is generally conservative, with more than 50% of its investment assets held in cash and deposits by the end of 2021. Since 2020, the company has increased its weighting on high-risk equity and real estate assets to leverage excess capital and improve investment returns. One offsetting factor in ADNTC’s balance sheet strength assessment is its high reliance on reinsurance, which has increased in 2020 as the reinsurance structure of its family takaful (life) business changes. However, the associated credit risk is financially strong through the use of reinsurance panels.
ADNTC has a strong operating track record with a five-year (2017-2021) weighted average return on equity of 17.3%. The company has strong underwriting results across its general and family takaful portfolio. Underwriting returns contracted for the second consecutive year in 2021 following challenging operating conditions in the UAE and structural changes made by ADNTC, which particularly affected the company’s family (life) takaful business. The company’s technology returns were AED 12.3 million ($3.4), AED 15.2 million ($4.1 million) in 2021, AED 15.2 million ($4.1 million) in 2020 and AED 70.3 million in 2019 AM ($19.1 million) (calculated by AM Best). Management actions implemented since 2020, including restructuring the family takaful reinsurance program and strategic diversification of the underwriting portfolio, are expected to help maintain strong underwriting performance in the years ahead.
A successful takaful operator, the company has a strong presence and established position in the UAE insurance market, supported by a strong and well-established distribution channel. After several years of strong annualized revenue growth, the company experienced two years of contraction in total written contributions in 2020 and 2021. The impact of the company’s family takaful portfolio is more pronounced than its general takaful portfolio, which is more sensitive to macroeconomic conditions and product changes in recent years.
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