The ratings on Tawuniya reflect the company’s lead competitive position in the Saudi market and its strong underwriting performance. These strengths are partially offset by reactive capital management and by levels of capitalization that are good but not overly strong.
Standard & Poor’s believes Tawuniya’s competitive position also remains strong. Although the company has come under increased pressure from new, authorized competitors over the past two years, it has managed to defend its leading market position. The company has well-developed links with government, and uses sophisticated customer services and support systems to manage the personal and commercial risks it writes. It also benefits from a developed infrastructure consisting of a network of nationwide offices and a skilled staff.
“Recent capital strategies are viewed as a relative weakness, as only a limited level of capital increase has taken place to date and recent strong earnings have been offset by the proposed dividend for 2009 of SR200 million,” said Standard & Poor’s credit analyst Neil Gosrani. “The company has accepted a significant rise in premium risk, which has also increased the need for capital support. Overall capitalization is assessed as good, although it is a relative weakness for the ratings at their current level.”
Capital adequacy is viewed as good. In 2009, capital adequacy was affected by a very significant increase in premium income and a proposed dividend of SR200 million. While rapid growth has been a familiar feature of the Saudi Arabian market, growth in 2009 was considered a step-change and has resulted in the emergence of balance sheet strain.
“We expect Tawuniya to apply more-effective capital management and formulate detailed plans to strengthen its balance sheet over the coming months. This is expected, ultimately, to result in capital adequacy being raised and maintained at a level more appropriate for the current rating level,” Gosrani said.
However, if the company fails to make substantive progress toward implementing a more-effective approach to capital management, this may lead to downward pressure on the ratings.”
Earnings are expected to reflect continued high-quality underwriting and stable investment results, as financial markets achieve a greater level of stability. “We do not expect the net combined ratio to significantly exceed the peak of 90 percent demonstrated over the last five years,” “Competitive pressures are likely to increase as new players enter the market, increasing the demand for highly skilled Saudi nationals. We expect Tawuniya to remain the leading player in the Saudi market for the foreseeable future and to maintain staff attrition levels not significantly higher than at present.”
