Kuwait Reinsurance Co. K.S.C. upgraded to 'BBB+'

25/09/2010 00:00 AST

Standard & Poor's Ratings Services said today that it raised its rating on Kuwait Reinsurance Co. K.S.C (Kuwait Re) to 'BBB+' from 'BBB'. The outlook is stable. "The upgrade reflects the company's ongoing improvement in underwriting results; it has made an underwriting profit in the last three years, and is expected to do so again in 2010," said Standard & Poor's credit analyst Kevin Willis.

"This reflects Kuwait Re's increased focus on technical underwriting, which is likely to lead to returns consistent with a higher rating in the future. In addition, it provides evidence of the strength of the company's competitive position and effectiveness of its enterprise risk management application."

The ratings reflect Kuwait Re's strong capitalization--in particular, its extremely strong capital adequacy, its strong investments and liquidity, and its good track record of underwriting performance in the past few years. Offsetting these strengths are the small absolute size of the company, which limits its competitive position, and the execution risks it has generated by expanding outside its core markets.

The stable outlook reflects our expectation that the company will maintain its improved underwriting performance. This is reflected in the company's continued ability to underwrite profitably in both its historical core business and newer regions.

Much of Kuwait Re's business consists of proportional treaties, which offer less volatility than nonproportional reinsurance, but also offer lower profit margins. As such, Standard & Poor's expects that the company will deliver consistent, albeit modest, underwriting profits in the medium term. We expect that the combined ratio for 2010 will be better than 100%.

In addition, we expect that Kuwait Re's developing businesses outside the Middle East region will also produce underwriting profits in the medium term, though we acknowledge that this business has less of a track record with the company and may therefore display greater volatility. Continued underwriting profitability, both in the core Middle East book and in the overseas operations, would demonstrate the strength of the company's competitive position.

Further positive ratings momentum is unlikely in the medium term. Negative ratings action would be prompted by deterioration in the operating performance trend and material weakening of capitalization.

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