Best’s News & Research Service - June 04, 2015 09:08 AM (EDT)
A.M. Best Revises Outlook to Positive and Affirms Ratings of Emirates Retakaful Limited
- June 04, 2015 09:08 AM (EDT)
London //BestWire// - A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating of B++ (Good) and the issuer credit rating of "bbb+" of Emirates Retakaful Limited (ERL) (United Arab Emirates).
The revised outlook reflects ERL's improving track record of technical earnings during a challenging market environment, when rates have been softening in its core markets. The ratings also factor in its strong risk-adjusted capitalisation, diversified business profile and adequate enterprise risk management.
ERL maintains a strong level of risk-adjusted capitalisation, benefiting from low business leverage and a conservative investment portfolio. The company is expected to maintain a sufficient capital buffer from strong earnings retention to support the company's strategic initiatives. Furthermore, management factors risk-based capital requirements into its strategic forecasting and intends to retain capital in its policyholder fund in the medium term to support underwriting risks.
During the 13-month period to December 2014, ERL generated gross written contributions of USD 82 million. Given the proportional nature of ERL's book of business, the company has delivered robust technical results, with an adjusted combined ratio, substituting actual expenses for Wakala fees (a management fee charged by shareholders to policyholders) of 99%. Given the dominance of proportional business in ERL's insurance portfolio and management's risk-selection abilities, A.M. Best expects the company's prospective technical performance to be maintained at a stable but marginal level. Draft numbers for the first quarter of 2015 indicate a combined ratio below 100%.
Positive rating movement could result from the gradual development of the company's business profile over the medium to long term, coupled with sustaining strong underwriting performance. There will be negative rating pressure if the company is unable to maintain risk-adjusted capitalisation at an adequate level, or if profitability materially deteriorates.
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 .
Key insurance criteria reports utilized:
- Understanding Universal BCAR
- Evaluating Country Risk
- Risk Management and the Rating Process for Insurance Companies
- Catastrophe Analysis in A.M. Best Ratings
- Takaful (Shari'a Compliant) Insurance Companies
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