S&P Global Ratings today affirmed its 'BBB+' long-term insurer financial strength and counterparty credit ratings on Qatar-based insurer Doha Bank Assurance Co. LLC (DBAC).
The outlook is negative.
At the same time, we removed the ratings from CreditWatch with negative implications, where we originally placed them on 12, June 2017.
The outlook revision reflects that on DBAC's parent, Doha Bank Q.S.C.
We continue to view DBAC as a strategically important subsidiary of Doha Bank, given its contribution to the bank's product offering, as well as integration of management and some operational functions. Our ratings on DBAC therefore benefit from two notches of support above its stand-alone credit profile (SACP).
As of June 30, 2017, DBAC's gross written premiums increased in line with our expectations by about 6 per cent to QAR 47.1 million from QAR 44.3 million during the first six months of 2016, as the insurer grew its motor insurance portfolio. The company's net profit after tax reduced to about QAR 1.4 million from QAR 3.9 million at mid-year 2016. The reduction in net profit was mainly due to a significant increase in motor insurance claims during the first six months of 2017. We therefore expect that, provided there is no further deterioration in operating performance, DBAC's net profit after tax for full-year 2017 will be broadly in line with its result at year-end 2016, when the company recorded a net profit after tax of QAR 3.1 million.
We continue to monitor the effect of the ongoing boycott of Qatar's economy on DBAC's operations. Although Qatari equities have seen losses, DBAC has a limited investment allocation to this class so the effect on performance is limited. Should the current political situation persist for an extended period, DBAC might be exposed to a general slowdown in both new business and collections of outstanding receivables. In this scenario, we would reassess our expectations for the company's growth and profitability.
However, DBAC's capital adequacy remains above our 'AAA' benchmark and its liquidity position is exceptional. In the event of a general tightening of liquidity and a slowdown in premium collections, these qualities would help to insulate the company and preserve its claims-paying ability, in our opinion.
The negative outlook reflects that on Doha Bank. We expect that DBAC's capital adequacy will remain at the 'AAA' level (based on our model), supporting what we regard as ambitious growth plans over the next two years. We also anticipate that DBAC will continue to expand its cooperation with its parent to strengthen its market position through profitable growth.
We could lower our ratings on DBAC if we lowered our rating on Doha Bank.
We could revise our outlook on DBAC to stable if we made a similar outlook change on Doha Bank.
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