A.M. Best Affirms Ratings of Doha Insurance Company Q.S.C.

LONDON, 25 August 2016

A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Doha Insurance Company Q.S.C. (DIC) (Qatar). The outlook for each rating remains stable.

The ratings reflect DIC's very strong risk-adjusted capitalisation, solid position within the Qatar insurance market and track record of good operating performance. Offsetting rating factors are the company's underdeveloped risk management framework and execution risk associated with the company's planned expansion.

DIC's risk-adjusted capitalisation remains very strong, benefiting from low underwriting leverage and a robust reinsurance panel that supports the company's significant reinsurance cession on commercial risks. Capital consumption continues to be driven by investment risk, due to the company's material exposure to domestic equities. Nevertheless, DIC holds a sufficient level of cash and cash equivalents to support an excellent liquidity position, and has demonstrated its solid financial flexibility with a successful rights issue in the first half of 2014. A.M. Best expects DIC to maintain strong risk-adjusted capitalisation, due to good internal capital generation, and a capital buffer that is sufficient to support the company's planned expansion outside Qatar, via its newly established managing general agent (MGA), MENA Re Underwriters Limited (MENA Re).

DIC has established a strong franchise within its domestic market. Although the company's gross written premium fell by 7% to QR 494 million (USD 136 million) in 2015, primarily driven by the reduction of infrastructure projects in a low oil-price environment, DIC remained one of the leading insurance providers in the country. In order to diversify its insurance portfolio and broaden its footprint, DIC opened in November 2015 MENA Re, a fully owned reinsurance MGA. MENA Re operates out of the Dubai International Financial Centre, writing inward facultative business in the Middle East and North Africa, and is expected to be a driver of growth for DIC in the next few years. Whilst this new expansion strategy entails execution risk, it is mitigated by the experience of the senior management hired to run this division.

DIC has demonstrated a track record of good operating results, and generated a profit of QR 110 million (USD 30 million) in 2015. Although the company reported a reduction in its net underwriting result to QR 79 million (USD 22 million) in 2015 from QR 85 million (USD 23 million) in 2014, its loss ratio remained resilient at 56% (51% in 2014). An increased expense ratio of 37% (25% in 2014), driven by the start-up costs associated with MENA Re, caused the combined ratio to deteriorate to 93% in 2015, considerably above the five-year average of 85%.

DIC's risk management is a negative rating driver. At present, the company operates a silo approach to risk management, mainly managing underwriting and credit risks independently. Whilst the company's track record of technical profitability is indicative of good underwriting controls, the risk management framework is currently deemed underdeveloped and requires significant improvement to effectively integrate and embed all risks the company is exposed to, especially in the context of its expansion plan.

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