A.M. Best Europe – Rating Services Limited has affirmed the
financial strength rating of A- (Excellent) and the issuer credit rating
of “a-” of Kuwait Reinsurance Company K.S.C. (Closed) (Kuwait Re)
(Kuwait). The outlook for both ratings remains negative.
The ratings reflect the company’s good level of risk-adjusted
capitalisation and good track history of generating profits. The
maintenance of the negative outlook is due to recent volatilities of
technical earnings associated with Kuwait Re’s inward retrocession
business. Earnings volatility is likely to be mitigated through
non-renewal of Kuwait Re’s major loss-making contract, which had
material exposure to natural catastrophe events in the last two years.
Additionally, Kuwait Re has made a concerted effort to improve risk
management to provide adequate protection to its profile, for which the
effectiveness will need to be assessed prospectively.
Kuwait Re’s risk-adjusted capitalisation deteriorated in 2011 but
remains supportive of its current ratings. The decrease in Kuwait Re’s
capital position resulted from higher loss reserves to catastrophic
events in 2011, in addition to its capital demand emanating from its
exposure to unquoted private equity investments. However, going forward,
A.M. Best believes that risk-adjusted capitalisation is likely to be
strengthened with an improved level of profitability and profit
A.M. Best acknowledges Kuwait Re’s sound track record of generating
profits, although technical losses have occurred within the last two
years. Underwriting losses stemmed from poor performance of Kuwait Re’s
main retrocession inward business in 2010 and 2011, which has been fully
offset by a sound investment performance. In 2011, investment returns
totalled USD 4.7 million and profit before tax reached USD 1.5 million,
a decrease of 70% compared to last year’s result. Going forward,
investment returns are likely to remain stable and complement the
company’s technical performance.
In light of recent results, Kuwait Re has taken a series of actions to
mitigate losses. In addition to the non-renewal of its main retro inward
programme, Kuwait Re has introduced a risk tolerance for its entire
portfolio, including its other retrocession contract. As evidenced by
2012 first quarter results, these measures have already taken effect,
demonstrated by an improvement in the company’s performance. Technical
profits totalled USD 689,626 and profit before tax was USD 2.3 million,
contrasting with losses of USD 3.6 million in the same period last year.
Positive rating actions are likely to stem from a good operating
performance and a decrease in Kuwait Re’s combined ratio. Negative
rating actions are likely to be driven by a deterioration in technical
performance and/or a material reduction in the company’s risk-adjusted
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a
comprehensive explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Key criteria
utilised include: “Risk Management and the Rating Process for Insurance
Companies”; “Assessing Country Risk”; and “Understanding Universal
BCAR”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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Source: A.M. Best Europe – Rating Services Limited