The ratings of TIC reflect its sound domestic profile, satisfactory risk-adjusted capitalisation and sound track record of technical profitability. However, the ratings are tempered by the weaker overall earnings of the company, its higher risk investment portfolio, unsophisticated enterprise risk management (ERM) and the country risk associated with Bahrain.
TIC wrote gross contributions of BHD 17.1 million in 2011, or 10% of the market total, ranking it as the third-largest insurer in Bahrain. Despite operating in a small Bahraini market, TIC has continued to deliver growth, with contributions expanding around 5% in 2011. Whilst competition is likely to remain tough, A.M. Best expects TIC to be able to defend its local position, leveraging off of its position as a provider of Islamic compliant insurance.
A.M. Best has assessed the capitalisation of TIC on a consolidated basis (shareholders and policyholders’ funds) in line with the Takaful insurance companies’ methodology. TIC’s risk-adjusted capitalisation is considered satisfactory and supportive of its secure ratings. However, the company’s capital position has weakened slightly due to contribution growth, which has outpaced its internal capital generating ability. Whilst TIC’s track record of technical profitability is sound, with a positive balance recorded on both the life and non-life technical accounts in each of the last five years, its overall earnings are considered to be fairly weak as a result of the low contributions from its investment returns. In the short-to-medium term, these factors are likely to remain unchanged; and thus, a weakening trend in risk-adjusted capitalisation is likely to persist. However, management have indicated that they expect a capital injection in the short to medium term to support growth plans.
Given that TIC is an Islamic compliant insurance company, it is subject to various restrictions with regard to investments. However, whilst A.M. Best acknowledges this, the company is significantly exposed to unlisted, non-liquid investments such as private equity, which are difficult to value and more prone to value shocks.
TIC’s ERM remains unsophisticated, although its relatively low risk profile helps mitigate risks somewhat. Going forward, A.M. Best expects TIC to develop its risk framework further and reduce reliance on reinsurers for expertise.
The ratings incorporate the perceived country risk associated with Bahrain. Bahrain is currently ranked as a Country Risk Tier 3 country by A.M. Best, reflecting its high political risk and moderate economic and financial system risk.
Positive rating movements are considered unlikely at present. Negative rating movements may occur should risk-adjusted capitalisation deteriorate faster than expected or should the planned capital injection not materialise in line with A.M. Best’s expectations.
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. Key criteria utilised include: “Understanding Universal BCAR”; “Takaful (Shari’a Compliant) Insurance Companies”; “Catastrophe Analysis in A.M. Best Ratings”; “BCAR for Life/Health Insurers”; “Rating Members of Insurance Groups”; and “Evaluating Country Risk”.