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Moody's changes outlook to positive for Beema; affirms Baa2 IFSR.

Moody's Investors Service has today changed to positive from stable the outlook for Damaan Islamic Insurance Company "Beema" (Q.S.C.C), based in Qatar.

The change in outlook reflects the company's continued strong profitability and improved market position. The rating agency has affirmed the Baa2 insurance financial strength rating (IFSR).

The change in outlook to positive for Beema reflects (1) its sustained strong profitability, both in terms of underwriting profit and bottom line, with a 5-year average combined ratio (COR) of 84 per cent and 5-year average return on capital (ROC) of 10 per cent on a Moody's basis in 2015; and (2) Beema's strengthened market position and brand, becoming the second largest player within the domestic Takaful market and sixth largest in the overall Qatari insurance market in terms of contributions written.

The affirmation of the Baa2 IFSR also reflects Beema's (1) strong capitalisation level, with consolidated equity of QAR297 million, representing 33.6 per cent of its total assets at YE 2015; (2) broad distribution, via its diversified shareholders (including two of the largest Islamic banks, the largest Qatari insurer and a real estate company); and (3) relatively strong asset quality, with the vast majority of investments held as cash, bank deposits and investment grade Islamic Sukuk bonds, translating to a low high risk assets (HRA) per cent of consolidated shareholders' and policyholders' equity of 27.5 per cent at YE 2015.

Furthermore Moody's expects that Beema will benefit from compliance with the new set of rules issued by the Qatar Central Bank in March 2016, in areas such as asset liability management, capital adequacy and reserve setting. These rules have, amongst other things, implemented new risk based capital (RBC) and actuarial-led reserving requirements starting April 2016.

More negatively, Beema's financial and total leverage remains somewhat high compared with GCC peers, at 30.4 per cent and 39.8 per cent respectively at YE 2015. The leverage levels mainly reflects the increased use of Murabahahh financing proceeds largely invested into investment grade Islamic Sukuks.

Moody's expects to resolve the positive outlook for Beema in the next 12 months. A rating upgrade could occur if (1) Beema maintains its strong profitability with COR below 90 per cent and ROC above 10 per cent consistently; and/or (2) it maintains its market position and brand; and/or (3) it strengthens its capital levels with consolidated equity equating to over 40 per cent of total assets whilst complying with the new RBC requirements and the updated actuarial-led reserving requirements.

Conversely, the rating may be affirmed with a stable outlook if (1) there is a significant increase in HRA, such as non-investment grade Sukuks, equities or real estate equating to a HRA per cent of consolidated equity of over 60 per cent; and/or (2) there is a significant deterioration in the underwriting profitability of Beema with COR above 100 per cent; and/or (3) financial leverage increases to above 35 per cent. The following rating has been affirmed:

- Damaan Islamic Insurance Company "Beema" (Q.S.C.C): Insurance Financial Strength Rating of Baa2

The outlook for the company has changed to positive from stable

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Publication:CPI Financial
Date:Aug 23, 2016
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