S&P: Saudi-Based Wataniya Insurance Co. Outlook Revised To Stable Following Capital Increase; 'BBB' Ratings Affirmed
Following the recent approval of the capital increase from the Capital MarketsAuthority, Wataniya is in the final stages of completing a rights issue which will double its share capital. According to our risk-based capital model, the net proceeds of SAR97 million will improve Wataniya's capital adequacy to extremely strong levels. After the capital increase, the company's total shareholders' equity will be about SAR162 million ($43 million). Because of the relatively small size of this capital base, we cap our capital and earnings assessment at moderately strong.
Moreover, Wataniya's investment portfolio comprises cash, fixed-income, and generally liquid securities. We expect the new capital to be invested in such securities, and this improves our view of the company's liquidity to exceptional. We combine our satisfactory business risk profile and moderately strong financial risk profile to determine our 'bbb+' anchor. The anchor is revised downward by one notch as a result of our holistic analysis.
Wataniya remains an insurer operating in Saudi Arabia without a license to write health insurance, a segment which represents about half the premiums in the market. As such, we believe it will be challenging for the insurer to growits premium base profitably. In the first half (H1) of 2016, Wataniya's gross written premiums shrank by about 8% to SAR298 million (H1 2015: 324 million), due to the loss of one key account. However, we view positively the company's performance in that period. Wataniya posted a net profit after zakat of SAR10 million as opposed to a net loss of SAR1 million in the same period last year.
The stable outlook indicates our expectation that Wataniya will continue to have an adequate competitive position, supported by profitable business growthin Saudi Arabia, and that its capital and earnings will remain at least moderately strong.
Although unlikely, we could lower the ratings on Wataniya if it fails to maintain an adequate competitive position in the Saudi market, or if its capital adequacy deteriorates. This could result from excessive unprofitable business growth.
We could raise the ratings on Wataniya if it maintains its market position relative to competitors and if it can demonstrate sustainable profitability ofoperations in the next two years.