S&P upgrades ratings on Doha Bank Assurance.
"The upgrade reflects our view of DBAC's progress in improving its risk management framework," said S&P. "We now assess enterprise risk management (ERM) as adequate, as we consider that the company has successfully embedded sufficient underwriting controls. Historical control failings, which led to excessive risk exposures and underwriting losses outside of the approved risk appetite, have now been resolved. We anticipate that DBAC's risk management will continue to evolve as the company grows. This will be particularly key if the insurer starts to write larger and more complex risks.
"We assess DBAC's business risk profile as fair, constrained by its modest size and market share within the Qatari market. With a gross written premium income of Qatari riyal (QAR) 107.1 million in 2014, DBAC's market share was below two per cent.
"Although the company benefits from its parent, Doha Bank, through which it sources roughly half of its gross premiums, we believe that the company could further develop this relationship. We expect that premium income sourced through Doha Bank will increase in the medium term, but that overall premium growth will remain modest, at around two per cent in 2015.
"We continue to assess DBAC's financial risk profile as lower adequate, with its moderately strong capital and earnings and adequate financial flexibility constrained by its high risk position. DBAC's extremely strong capital adequacy is a key strength to the rating, and we expect it to remain at this level through 2017. More robust risk management and underwriting procedures have, in our view, contributed to DBAC's significant improvement in technical results. The combined ratio (a measure of losses plus expenses; below 100 per cent signifies an underwriting profit) improved to 94 per cent in 2014 from 103 per cent in 2013, leading to a net profit after tax of QAR10.2 million for the year (2013: QAR 3.8 million).
"On the investment side, our assessment of DBAC's risk position remains high due to its significant concentration in the banking sector, which holds 70 per cent of DBAC's invested assets. We expect that the company will improve its investment portfolio diversification over time.
"Our assessments of DBAC's management and governance (fair) and liquidity position (exceptional) remain unchanged.
"Our rating on DBAC benefits from three notches of support above the stand-alone credit profile (SACP), as we view the insurer as a strategically important subsidiary of Doha Bank. However, we apply a holistic adjustment to DBAC's SACP due to DBAC's small size and market share, its significant dependence on Doha Bank to generate premium income, and flat premium growth in 2014.
"The stable outlook reflects our opinion that DBAC's extremely strong capital adequacy (as measured by our model) will support the company's moderate and profitable growth ambitions over the next two years. We also expect DBAC to utilize the Doha Bank branding to improve its market position through profitable growth.
"We could lower the rating on DBAC if capital adequacy deteriorates against our expectations, caused by uncontrolled risk exposures leading to underwriting losses, significant growth, or negative investment results.
We see little likelihood of an upgrade currently. We could consider revising the SACP upward if we see significant improvement to DBAC's competitive position through profitable premium growth and underwriting results, without compromising its strong capital position."
2015 CPI Financial. All rights reserved. Provided by SyndiGate Media Inc. ( Syndigate.info ).
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|Date:||May 18, 2015|
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