1 Best's Credit Rating and Report Updates for QATAR INSURANCE COMPANY S.A.Q. Best's Rating of A (Excellent) Financial Size Category of XI ($750 Million to $1 Billion) Rating Category (Excellent): Assigned to companies that have, in our opinion, an excellent ability to meet their ongoing insurance obligations. A.M. Best assigns each letter rated (A++ through D) insurance company a Financial Size Category (FSC), which is designed to provide a convenient indicator of the size of a company based on reported policyholders' surplus and conditional or reserve funds. The objective of Best's Credit Rating System is to provide an opinion of an insurer's financial strength and ability to meet ongoing obligations to policyholders. Our opinions are derived from the evaluation of a company's balance sheet strength, operating performance and business profile as compared to Best's quantitative and qualitative standards. View our Best's Credit Rating Methodology for more information. While Best's Credit Ratings reflect our opinion of a company's financial strength and ability to meet its ongoing obligations to policyholders, they are not a warranty, nor are they a recommendation of a specific policy form, contract, rate or claim practice. View our entire notice for complete details. The rating symbols "A++", "A+", "A", "A-", "B++", and "B+" are registered certification marks of the A.M. Best Company, Inc. Note: The above information reflects the most recent Best's Credit Rating for this company, which may have been released subsequent to the creation of the following AMB Credit Report - Insurance Professional. AMB Credit Report - Insurance Professional provides detailed business overview, extensive financial data and analytical commentary, product and geographic information, company history, as well as the rationale supporting the financial strength rating assigned by A.M. Best. These reports are updated on a regular basis based on input and analysis performed throughout the year. Report Revision Date - 12/06/2013 * The Report Revision Date * represents the last significant material change made to this report. Other non-material changes may have been made to this report subsequent to this date, but are not reflected in the report revision date. The AMB Credit Report - Insurance Professional below was created based on the following dates. Rating and Commentary 1 Financial 2 General Information 3 Best's Credit Rating: Corporate Structure: Time Period: Annual /20/ /06/2013 Rating Rationale: 11/20/2013 Last Updated: 01/28/2013 States Licensed: N/A Report Commentary: Status: Quality Cross Officers and Directors: 12/06/2013 Checked 12/02/2013 *Note: The Rating and Commentary 1 dates outline the most recent updates to the company's Best's Credit Rating, Rating Rationale, and Report Commentary for key rating and business changes. Report Commentary may include significant changes to the Business Profile, Risk Management, Operating Performance, Balance Sheet Strength, or Reinsurance sections of the report. The Financial 2 dates reflect the current status of the financial tables and charts found within the AMB Credit Report, including whether the data was loaded "As Received" or had been run through A.M. Best "Quality Cross Checks". The General Information 3 dates cover key changes made to Corporate Structure, States Licensed, or Officers and Directors.
2 Operating Company Non-Life AMB Credit Report - Insurance Professional for QATAR INSURANCE COMPANY S.A.Q. Ultimate Parent: Qatar Insurance Company S.A.Q. Tel: AMB#: Ultimate Parent#: P.O. Box 666, Doha, Qatar Web: Report Revision Date: 12/06/2013 Fax: AIIN#: AA BEST'S CREDIT RATINGS Best's Financial Strength Rating: A Best's Issuer Credit Rating: a Best's Financial Size Category: XI Outlook: Stable Outlook: Stable RATING RATIONALE Rating Rationale: The ratings for Qatar Insurance Company SAQ (QIC) reflect its excellent prospective risk-adjusted capitalisation supported by strong financial flexibility, robust underwriting performance and strong business diversification. Offsetting rating factors are QIC's concentration in Qatari equities, the ongoing development of enterprise risk management (ERM) to support the company's expansion and the execution risk associated with Q-Re LLC (Q-Re). The ratings for Qatar International LLC (QICI) and Q-Re incorporate a strong level of support from its parent, QIC. QIC provides a parental guarantee to both companies and has supported Q-Re through capital injections of QAR 146 million in 2012 and QAR 182 million in 2013, with a further QAR 182 million expected in The international businesses and their growth are central to QIC's overall strategy as well as integrated into the group through shared management and dependence on shared asset management, IT and audit functions. The group also provides internal reinsurance to its subsidiaries. QIC is the largest insurer in Qatar with a dominant position in its domestic market across commercial and personal business lines. In particular, QIC enjoys a dominant position in the Qatari energy market. Its profile is enhanced through its subsidiaries, QICI and Q-Re, providing the company with a franchise accessing several markets. QICI is the international subsidiary of the QIC group, writing direct lines in the United Arab Emirates (UAE), Oman, Kuwait and Malta which represented 36% of the group's gross written premium in QICI has grown successfully in the UAE to become the sixth-largest insurer in that market. Q-Re, a subsidiary of QIC (with indirect ownership through QICI), is a reinsurer writing a diverse portfolio of business on a global basis, and represented 15% of QIC's portfolio in The group is well diversified by line of business, underwriting all major
3 lines of insurance and also generates advisory fee income through asset management subsidiary, Qatar Economic Advisors (QEA), and rental income through the real estate subsidiary, Qatar Insurance Company Real Estate (QICR). In A.M. Best's opinion, this strategy provides strong protection against underwriting or investment market volatility. In A.M. Best's view, QIC's prospective risk-adjusted capitalisation is expected to remain excellent, benefitting from the company's diversified insurance profile. QIC's moderate retention lowers its underwriting leverage and is supported by a well-rated reinsurance panel. An offsetting factor is the locally concentrated exposure to Qatari equities within the investment portfolio. The investment portfolio has achieved consistently high returns in recent years; however, its concentrated profile creates volatility in QIC's capital position. Despite this, A.M. Best considers QIC to have abundant capital to support any foreseeable growth over the coming years, with a successful rights issue during 2013 increasing shareholders' equity and demonstrating financial flexibility. Capital distribution within the group is considered sound, with the rated subsidiaries also being strongly capitalised. The risk-adjusted capitalisation of both QICI and Q-Re benefits from more conservative, highly liquid investment portfolios and well-rated reinsurance counterparties. QIC achieved overall earnings of QAR 620 million in 2012 (2011: QAR 603 million) and has had an average combined ratio of 81% over the last five years. The operating performance in 2012 was affected by residual losses from catastrophe events at reinsurance division Q-Re; however, the combined ratio remained robust at 85.5% (2010: 82.4%). Very strong underwriting results in direct lines both in Qatar and in regional subsidiaries, along with consistently good investment returns, have balanced out this effect. QIC uses active investment management at QEA to improve investment returns and achieved a 9.1% net investment return in 2012, bolstering profitability. In 2013, group results are likely to be improved with better domestic performance and lower loss experience combined with very high growth at Q-Re. Q-Re has undergone significant growth in 2013 of 234%, and the company is in the process of further expanding its reinsurance operations in Zurich and Bermuda, having hired a new underwriting team to write several new lines of treaty business. Gross written premium is expected to reach QAR 1.6 billion in 2014 as against QAR 376 million in At the same time, underwriting performance is weaker than planned with adverse reserve developments in the third quarter of 2013 moving the loss ratio up to 88%. In A.M. Best's view, Q-Re's expansion plans represent material execution risk; however, Q-Re has restructured its management, including a new CEO and CRO, in order to bolster its underwriting and risk management capabilities. QIC benefits from a capable and experienced management team that has overseen a period of impressive expansion and profitability. The management has, in general, implemented good underwriting controls throughout the group. The ERM framework across the group for its current business has evolved over the years and is in a developing stage. QIC has invested heavily in improving group-wide risk-management, particularly at Q-Re. A.M. Best expects risk-management systems to further improve in the coming years with a greater focus on capital modelling and risk aggregations, particularly in the reinsurance segment. Upward rating action is unlikely in the near term. Negative rating pressure could arise at either QIC or Q-Re if the company is unable to meet its strategic objectives.
4 FIVE YEAR RATING HISTORY BEST'S Date FSR ICR 11/20/13 A a 11/26/12 A a RATING UNIT MEMBERS Qatar Insurance Company S.A.Q. (AMB# ): BEST'S AMB# COMPANY FSR ICR Q-Re LLC A a QIC International LLC A a CORPORATE STRUCTURE AMB# COMPANY NAME DOMICILE %OWN Qatar Insurance Company SAQ Qatar Q Life & Medical Insur Co LLC Qatar Qatar Economic Advisors Qatar CATCo Investment Management Bermuda CATCo-Re Ltd. Bermuda QIC International LLC Qatar Kuwait Qatar Insurance Company Kuwait Oman Qatar Insurance Company Oman Q-Re LLC Qatar BUSINESS PROFILE Established in 1964, Qatar Insurance Co SAQ (QIC) diversified insurance group domiciled in Doha, Qatar. The company has leading position in its domestic market, with majority market share and dominates the energy market. Through its international business, QIC International LLC (QICI) it writes direct business in UAE, Kuwait, Oman and Malta and writes international reinsurance business through Q-Re LLC (Q-Re). Additionally, the Group writes Life and Medical business through Q Life & Medical (QLM) and provides asset management services through Qatar Economic Advisors (QEA). QIC is a public company, listed on the Doha stock exchange, with a market capitalisation of QAR 8.4 billion (USD 2.3 billion). The largest shareholder is the Government of Qatar which through its associates holds 13%. QICI is 85% owned by QIC; Q-Re is 56% owned directly by QIC and a further 40% owned indirectly through QICI. Domestic business represented 41% of gross written premium in 2012 with UAE business being 26%, Oman 7% and Kuwait 3%. 15% of gross premium was written by Q-Re which has a very geographically diversified profile across 90 countries. Across all operations 25% of gross written premium is medical business, motor is a further 14% and energy and
5 property represents 22% and 12% respectively across the different business units. Given high-market share in its home market, QIC's growth plans are led by its international business and particularly Q-Re. QIC have hired a team of underwriters in Zurich and Bermuda to write several new lines of business and build a global reinsurance operation. This subsidiary is expected to grow quickly and is expected to represent a much higher share of gross written premium in 2014, as against 15% in QICI and Q-Re are integrated into and supported by QIC in several ways. Both companies benefit from a broadly-worded guarantee from QIC covering all liabilities. Additionally, the two companies have board members and management in common and use shared group services including investment management, IT support and HR. QIC has provided additional capital to Q-Re in 2012 and 2013 and intends to continue to do so in 2014 in support of Q-Re's expansion. QIC is subject to regulation by the state regulatory regime in respect of local business and Qatar Financial Centre (QFC) regulation for QICI and Q-Re's international business; in additional to local regulators for subsidiaries and branches. In A.M. Best's opinion, QIC's business plans are ambitious, particularly with regard to the expansion of Q-Re. However the management has overseen a period of strong, profitable growth for the business and has invested significantly in expertise and risk management to support growth. RISK MANAGEMENT In A.M. Best's opinion, the company's ERM framework across the group for its current business has evolved over the years and is in a developing stage. QIC have demonstrated a strong ability to control premium risk by monitoring the profitability of all lines of business across the group, resulting in strong and consistent profits in their direct lines business.. Each subsidiary's risk committee reports to a central committee and formalized risk guidelines are in place with a strong concentration on pricing risk. Q-Re now has a new CRO, access to a team of actuaries and catastrophe modelers to support the property treaty business underwritten. Risk modeling at a group-wide level and particularly in the reinsurance operation is expected to improve significantly in the near-term in line with new hires in risk and catastrophe modeling. The company produces regular solvency data for the Qatari regulator and is developing an internal model to provide a better grasp of capitalisation. OPERATING PERFORMANCE Operating Results: In 2012, QIC produced a profit of QAR 620 million, as against QAR 603 million in Results continued to be depressed by development of 2011's catastrophe events, in addition to energy losses and the effect of Costa Concordia at Q-Re. Investment results, however continued to be strong supporting QIC's overall profitability. In 2013 to date, the group loss experience has improved with the claims ratio at 68% compared to 71% at the same period in 2012, achieving 33% growth driven by Q-Re
6 (growth in 2012 was 7.4%). The profit at the end of the third quarter was QAR 553 million (2012: 425 million). QIC in Qatar, Q-Re and all international subsidiaries apart from the Kuwaiti operation all produced profits. Underwriting Results: In 2012, gross premiums grew 7.4% across the group to reach QAR 2.6 billion. Higher-than-expected loss experience and residual catastrophe exposure at Q-Re put pressure on QIC's underwriting performance but overall combined ratio remained strong at 85.5%. This result reflects QIC's well-diversified underwriting portfolio. The domestic operation, representing 41% of gross written premium, produced a combined ratio of 66% (2012: 64%), compensating for weaker performance in the reinsurance division. A.M. Best expects QIC to achieve an improved level of underwriting profit in 2013 as Q- Re becomes more profitable and the effect of legacy losses reduces. Investment Results: QIC's portfolio is actively managed and benefits from the high dividends paid by Qatari companies. QIC achieved a net investment return of 9.1% in 2012 (2011: 9.3%) with investment income consistently contributing more to overall profitability than underwriting balance over the last five years. BALANCE SHEET STRENGTH Capitalization: At the end of September 2013, QIC's capital and surplus stood at QAR 4.9 billion (USD 1.4 billion). In A.M. Best's opinion, QIC's prospective risk-adjusted capitalisation is excellent, with abundant capital to support any foreseeable growth in the next two years. The company's risk-adjusted capital position benefits from the company's diversified profile of insurance risks and limited catastrophe exposure. An offsetting factor is high credit risk exposure due to a relatively low level of business retention, however the programme is generally with well-rated reinsurers. QIC has reduced its dividend resulting in stronger capital growth, with 2012 representing 33% of paid up capital (2011: 65%); although given QIC's reserves and retained earnings this only represents 8% of capital and surplus. QIC maintains a QAR 159 million catastrophe reserve representing 5% of each year's net profit. The reserve is made available at the discretion of the Board. Loss Reserves: Most business is short tail, with engineering and construction business as an exception. Loss reserves are established with the aid of QIC's reinsurers and an external actuary evaluates on an annual basis the company's reserves for the overall business. An independent third party has confirmed that QIC's reserving was reasonable at year-end Liquidity: QIC's liquidity position is considered excellent. The company's policy is always to hold cash and cash equivalents sufficient to cover net technical reserves, additionally these are held with highly rated banks. At the end of September 2013, the company had QAR 3.7 billion in cash and equivalents and QAR 2.5 billion in net technical reserves
7 (including unearned premium reserves [UPRs]). The company should not have any funding requirements in the short-to-medium term. Investments: The company's investment portfolio has a concentration in Qatari public equities, representing 25% of the total investment portfolio, along with further private holdings. The total portfolio size is increased by repo borrowings of QAR 1.3 billion in order to fund bond holdings. The bond portfolio is generally with well-rated counterparties with 41% in Qatar and the rest geographically diversified. Real estate in Doha and Dubai represents 7% of the investment portfolio and is held at well below market value. Summarized Accounts as of December 31, 2012 Data reflected within all tables of this report has been compiled from the consolidated financial statements of this company (Source: Company Financial Statement). US $ per Local Currency Unit.2747 = 1 Qatari Rial (QAR) STATEMENT OF INCOME 12/31/2012 QAR(000) 12/31/2012 USD(000) Technical account: Gross premiums written Reinsurance ceded 2,558,597 1,007, , ,765 Net premiums written Increase/(decrease) in gross unearned premiums 1,551,079 21, ,081 6,013 Increase/(decrease) in reinsurers share unearned premiums -34,552-9,491 Net premiums earned 1,494, ,577 Total underwriting income 1,494, ,577 Net claims paid 841, ,116 Net increase/(decrease) in claims provision 179,996 49,445 Net claims incurred 1,021, ,561 Management expenses 136,445 37,481 Acquisition expenses 130,079 35,733 Net operating expenses 266,524 73,214 Total underwriting expenses 1,287, ,775 Balance on technical account 206,778 56,802 Combined technical account: Gross premiums written Reinsurance ceded 2,558,597 1,007, , ,765 Net premiums written Increase/(decrease) in gross unearned premiums 1,551,079 21, ,081 6,013 Increase/(decrease) in reinsurers share unearned premiums -34,552-9,491 Net premiums earned 1,494, ,577 Total revenue 1,494, ,577 Net claims paid 841, ,116 Net increase/(decrease) in claims provision 179,996 49,445
8 Net claims incurred 1,021, ,561 Management expenses 136,445 37,481 Acquisition expenses 130,079 35,733 Net operating expenses 266,524 73,214 Total underwriting expenses 1,287, ,775 Balance on combined technical account 206,778 56,802 Non-technical account: Net investment income 286,977 78,833 Realised capital gains/(losses) 207,217 56,923 Unrealised capital gains/(losses) 1, Other income/(expense) -82,873-22,765 Profit/(loss) before tax 619, ,219 Profit/(loss) after tax 619, ,219 Dividend to shareholders 297,297 81,667 Transfer to reserves 139,887 38,427 Increase/(decrease) in the equalisation provision 29,592 8,129 Exceptional income/(expense) -21,365-5,869 Minority interests 9,332 2,564 Retained Profit/(loss) for the financial year 122,182 33,563 Retained Profit/(loss) brought forward 1,032, ,582 Retained Profit/(loss) carried forward 1,154, ,146 MOVEMENT IN CAPITAL & SURPLUS 12/31/ /31/2012 QAR(000) USD(000) Capital & surplus brought forward 3,528, ,378 Change in share capital 148,648 40,834 Change in non-distributable reserves -8,761-2,407 Change in claims equalisation reserve 29,592 8,129 Change in other reserves -180,531-49,592 Profit or loss for the year 619, ,219 Capital gains or (losses) -10,667-2,930 Dividend to shareholders -297,297-81,667 Other changes -36,887-10,133 Total change in capital & surplus 263,752 72,453 Capital & surplus carried forward 3,792,613 1,041,831 ASSETS 12/31/ /31/ /31/2012 QAR(000) % of total USD(000) Cash & deposits with credit institutions 2,123, ,429 Bonds & other fixed interest securities 819, ,066 Shares & other variable interest instruments 1,738, ,491 Liquid assets 4,681, ,285,986 Unquoted investments 375, ,166 Real Estate 451, ,956 Inter-company investments 70, ,340 Total investments 5,578, ,532,448 Reinsurers' share of technical reserves - 488, ,304
9 unearned premiums Reinsurers' share of technical reserves - claims 1,461, ,438 Total reinsurers share of technical reserves 1,950, ,741 Insurance/reinsurance debtors 618, ,887 Other debtors 40, ,136 Total debtors 658, ,023 Fixed assets 19, ,297 Prepayments & accrued income 44, ,200 Total assets 8,251, ,266,709 LIABILITIES 12/31/ /31/ /31/2012 QAR(000) % of total USD(000) Capital 891, ,002 Paid-up capital 891, ,002 Non-distributable reserves 1,414, ,661 Claims equalisation reserve 159, ,702 Retained earnings 1,154, ,146 Capital & surplus 3,620, ,511 Minority interests 172, ,320 Gross provision for unearned premiums 1,101, ,588 Gross provision for outstanding claims 2,539, ,591 Total gross technical reserves 3,640, ,000,179 Insurance/reinsurance creditors 591, ,519 Other creditors 84, ,304 Total creditors 676, ,823 Accruals & deferred income 79, ,750 Other liabilities 62, ,127 Total liabilities & surplus 8,251, ,266,709 MANAGEMENT In A.M. Best's opinion, QIC's management is highly competent and has overseen a period of strong underwriting along with growth from regional offices and international reinsurance business. The senior management team has been in place for several years and has a strong grasp of operations throughout the Group. There is a track record of growing successful divisions into profitable subsidiaries, as has been the case with QICI, Q-Re and more recently QLM. QIC has a demonstrated ability to hire key management from international and European insurers where necessary. DIRECTORS Mr. Abdullah Bin Khalifa Al Attiva (Director) Mr. Hussain Al Fardan (Director) Mr. Jassim Al Jaidah (Director) Sheikh Jassim Bin Hamad Bin Jabor Al Thani (Director) Sheikh Khalid Bin Mohammed Al Thani (Chairman and Managing Director) Sheikh Soud Bin Khalid Al Thani (Director)
10 Mr. Khalaf Al Mannai (Director) Sheikh Hamad Bin Faisal Al Thani (Director) Mr. Ibrahim Abdullah Al-Mahmoud (Director) Khalifa A Al-Subaey (Group President & CEO) ANALYSIS OF GROSS PREMIUMS WRITTEN QAR QAR QAR QAR (000) (000) (000) (000) Fire 2,227,065 2,042,666 1,828,889 1,842,295 Marine 331, , , ,447 Total non-life 2,558,597 2,383,051 2,153,080 2,149,742 REINSURANCE QIC has outward reinsurance protection covering separate lines of business written in Doha as well as reinsurance cover arranged by underwriting subsidiaries. Retention is relatively low at 51% in 2012; although this is expected to steadily increase over the next three years. Significant credit exposure is offset by well-rated reinsurers and stable pricing suggests a good on-going relationship. BALANCE SHEET ITEMS QAR QAR QAR QAR QAR (000) (000) (000) (000) (000) Liquid assets 4,681,419 4,403,332 4,054,421 4,168,203 3,641,563 Total investments 5,578,625 5,329,666 5,057,952 5,234,883 4,665,356 Total assets 8,251,581 7,777,220 7,237,146 6,795,622 6,039,180 Total gross technical reserves 3,640,986 3,259,701 2,739,801 2,098,795 1,732,081 Net technical reserves 1,690,708 1,454,272 1,123,514 1,019, ,353 Total liabilities 4,631,227 4,437,860 3,898,530 3,941,547 3,475,989 Capital & surplus 3,620,354 3,339,360 3,338,616 2,854,075 2,563,191 INCOME STATEMENT ITEMS QAR QAR QAR QAR QAR (000) (000) (000) (000) (000) Gross premiums written 2,558,597 2,383,051 2,153,080 2,149,742 1,972,307 Net premiums written 1,551,079 1,383,389 1,166,038 1,135, ,434 Balance on technical account(s) 206, , , , ,059 Profit/(loss) before tax 619, , , , ,083 Profit/(loss) after tax 619, , , , ,083 LIQUIDITY RATIOS (%) Total debtors to total assets Liquid assets to net technical reserves
12 Company. While the data in this report was obtained from sources believed to be reliable, its accuracy is not guaranteed. AMB Credit Report - Insurance Professional BCR