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FOR IMMEDIATE RELEASE
LONDON - FEBRUARY 02, 2017 10:23 AM (EST)
A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Kuwait Reinsurance Company K.S.C.P. (Kuwait Re) (Kuwait). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect Kuwait Re’s strong risk-adjusted capitalisation, diverse business profile and established enterprise risk management (ERM) framework. A partially offsetting rating factor is the company’s volatile underwriting performance over recent years. In addition, following the acquisition of the majority of Kuwait Re’s share capital by Al Ahleia Insurance Company S.A.K.P. (AAIC) in 2015, there have been a number of key management changes, which gives rise to potential execution risk for Kuwait Re achieving its strategic plan.
The ratings also factor in an assessment of the financial strength of Kuwait Re’s ultimate parent, AAIC, which has maintained a solid level of risk-adjusted capitalisation post its acquisition of Kuwait Re, with the group’s consolidated financial strength benefiting from the diversification of risk exposures afforded by the integration of Kuwait Re. AAIC, as a direct insurer, has a leading domestic profile in Kuwait and a track record of excellent technical performance.
Kuwait Re’s risk-adjusted capitalisation is strong, with capital consumption driven by underwriting risks, due to its high premium retention, and investment risks derived from its private equity fund holdings of KWD 4.2 million, as at year-end 2015. Despite the company’s exposure to these higher risk and illiquid assets, the majority of Kuwait Re’s investment portfolio comprises highly liquid cash and deposits, which in A.M. Best’s opinion provide sufficient liquidity to meet policyholder obligations.
Kuwait Re has a diverse business profile, with operations spanning the Middle East and North Africa, Asia-Pacific and Central and Eastern Europe. Kuwait Re’s underwriting portfolio is well-diversified by class of business, providing proportional, non-proportional and facultative solutions to its cedants. In 2016, Kuwait Re undertook further realignment of its portfolio mix toward facultative and excess of loss business in a drive to improve long-term profitability; although A.M. Best expects this to be accompanied by a notable decrease in gross premium volume for the year, as the company reduces exposure to certain underperforming proportional segments.
Whilst the company has a track record of good operating performance, albeit interrupted by a marginal loss in 2014, the balance of earnings has been traditionally driven by investment income, with volatile technical performance considered a partially offsetting rating factor. A.M. Best notes that Kuwait Re is in the process of taking strategic actions designed to reduce the volatility of its technical earnings and to improve its underwriting performance, however, expects this to prove challenging given the ongoing difficult reinsurance market conditions. A.M. Best expects Kuwait Re to report a technical profit for 2016. A material deviation from this expectation could create negative rating pressure.
Kuwait Re’s ERM framework has developed progressively in recent years, with its risk management capabilities considered sufficient to manage its risk profile. The company has well-established risk tolerances, and appropriate controls covering insurance, asset and operational risks. The company has developed internal capital modelling capability, and is able to measure and mitigate geographical accumulations of insured risks.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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