Fitch Ratings has published Wataniya Insurance Company - a Saudi Joint Stock Company's (Wataniya) 'A-' Insurer Financial Strength (IFS) Rating.

Simultaneously, Fitch has published the insurer's National IFS Rating of 'AA(sau)'. The Outlooks are Stable.

The ratings reflect the insurer's strong and improved financial performance in 2023, backed by its prudent pricing and growing volumes, its strong capital position and good company profile.

The insurer's National IFS Rating is derived using Fitch's National Ratings Correspondence Table for Saudi Arabia.

Key Rating Drivers

Strong Financial Performance: Wataniya reported a significantly improved net profit of SAR85 million in 2023 (reported under IFRS17 accounting standard) versus a net loss of SAR28 million in 2022. The improvement was due to a turnaround in its underwriting performance supported by rate increases and volume growth mainly in the motor portfolio.

Wataniya's Fitch-calculated combined ratio improved to 94% in 2023 from 102%, helped by prudent pricing decisions. Fitch views stiff price competition in the motor insurance market as a key risk facing Saudi motor insurers; however, we expect Wataniya's prudent underwriting to help the insurer maintain underwriting profitability amid a challenging pricing environment.

Good Company Profile: Fitch's assessment of Wataniya's company profile reflects its moderate but improved operating scale and franchise and a well-diversified product mix. Wataniya's premium-based market share markedly improved in 2023, supported by considerable growth in corporate motor and group life insurance lines. Wataniya's gross written premiums (GWP) grew 56% in 2023 to SAR1.6 billion and Fitch estimates the insurer's market share to have exceeded 2% in 2023.

Fitch regards Wataniya as a reasonably well-diversified insurer in the country by product lines. Motor insurance contributed to 59% of GWP in 2023 (2022: 48%), followed by property and casualty lines at 33% (2022: 47%) and group life insurance at 8% (2022: 5%). Wataniya does not have a license to underwrite health insurance. The insurer specialises in commercial insurance, partly supported by its association with its majority shareholder, E.A. Juffali and Brothers.

Strong Capitalisation: Fitch's view on Wataniya's capitalisation reflects its Prism score of 'Extremely Strong' at end-2023, unchanged from end-2022. The score is buoyed by SAR200 million capital raised by the company through a rights issue in 2022 to support its solvency and its growth plans. Wataniya's solvency ratio remained above the regulatory minimum since the capital raise. We expect Wataniya's Prism score to remain at least 'Strong' in the near term, helped by strong earnings, although partly offset by significant business growth that could consume capital.

No Financial Leverage: Wataniya's financial leverage ratio was zero, which supports our assessment of its capitalisation and leverage.

Good Reserving Practice: The majority of Wataniya's policies are short-tailed, which helps limit the impact of significant adverse claims experience on reserve adequacy. Wataniya sets its reserves at best-estimate levels based on regular evaluation of historical results and expectations of claims experience.

Conservative Investment Mix: Fitch views Wataniya's investment risk as low. The insurer's investment portfolio is dominated by cash and cash equivalents, deposits and other fixed-income investments (totaling around 90% at end-2023). A majority of its fixed-income investments were rated investment-grade and the insurer's exposure to equity and mutual fund investments remained fairly modest.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade of International and National Ratings

Significant improvement in company profile, indicated by a meaningful and sustained increase in market position or franchise, while maintaining a strong capital position

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade of International and National Ratings

Deterioration in capitalisation as reflected in the Prism score falling to the lower end of 'Strong' on a sustained basis

Significant deterioration in underwriting performance

Date of Relevant Committee

07 May 2024

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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