The Credit Ratings (ratings) reflect QGIRC’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.

The downgrades reflect material deterioration in QGIRC’s risk-adjusted capitalisation to a very strong level from a strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), due to a decline in available capital following the recognition of operating losses in each of the past three financial years (2017-2019).

The group reported a loss of QAR 459 million in 2019, largely driven by fair value losses from its real estate holdings, coupled with negative earnings from its insurance operations. In addition, the group’s revised approach to the valuation of its sizeable investment property portfolio led to adverse restatements for the 2018 and 2017 financial years, with material operating losses of QAR 141 million and QAR 284 million reported in the respective years. The group had previously reported profits for these financial years.

The group had previously reported shareholders’ equity of QAR6.3 billion at year-end 2018 (as published) but, due to the prior-year restatements and 2019 losses, fell by 20.6% to QAR 5.0 billion at year-end 2019.

Despite market-to-market losses, QGIRC’s investment property portfolio continues to dominate the group’s balance sheet, representing 66% of total investments at year-end 2019 and is an offsetting factor to the group’s balance sheet strength. In addition, prospective risk-adjusted capitalisation is highly sensitive to domestic equity market fluctuations. The group’s new senior management team has implemented initiatives to de-risk its balance sheet away from real estate exposures. However, a level of execution risk exists given the difficult real estate market conditions in Qatar.

The negative Long-Term ICR outlook reflects pressure on QGIRC’s operating performance. Given the adverse valuation trends in its domestic real estate market, and QGIRC’s asset exposures, further fair value losses cannot be ruled out. The negative Long-Term ICR outlook also reflects concerns regarding the group’s internal and financial reporting controls, highlighted by asset impairments recognised in 2019. AM Best notes that a remuneration dispute with a former senior manager remains unresolved. highlighting further concerns regarding future earnings risk. The group’s new senior management team has committed to an improved internal control and governance framework.