A.M. Best Affirms Ratings of Al Fajer Retakaful Insurance Company K.S.C. (Closed)

LONDON--(BUSINESS WIRE)-- A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of “bbb+” of Al Fajer Retakaful Insurance Company K.S.C. (Closed) (Al Fajer Re) (Kuwait). The outlook for both ratings remains negative.

The ratings reflect the good level of risk-adjusted capitalisation within Al Fajer Re’s combined shareholders’ and retakaful funds. Offsetting factors include a marginal level of risk-adjusted capitalisation within the company’s stand-alone retakaful fund and historically volatile financial results.

The negative outlook reflects A.M. Best’s concerns over Al Fajer Re’s historically weak financial results and its deteriorating level of risk-adjusted capitalisation, particularly within the stand-alone retakaful fund.

Although Al Fajer Re’s financial results have been somewhat volatile in the past, with underwriting results being affected by large losses and investment results impacted by significant provisioning, the company reported improved figures for the financial year ending March 31, 2012, with modest profits from both underwriting and investment operations. In fact, the 2012 financial year represented Al Fajer Re’s first year of underwriting profits since inception in 2008, with the company reporting a loss ratio of 59% and a combined ratio of 96%. In the same year, the company’s retakaful fund repaid KD 0.8 million (USD 3 million) of its outstanding KD 6.6 million (USD 23.4 million) Qard Hassan (interest free loan from shareholders), and its shareholders’ fund reported a net profit of KD 0.2 million (USD 0.8 million). A.M. Best notes that Al Fajer Re is making a concerted effort to improve its level of enterprise wide risk management following the difficulties it has encountered over previous years, and A.M. Best expects that improvements will continue in the coming years.

The level of risk-adjusted capitalisation within Al Fajer Re’s stand-alone retakaful fund decreased to a marginal level during the 2011 financial year, mainly as a result of provisioning for the company’s investment in The Investment Dar Company and underwriting losses. These same factors also reduced the level of risk-adjusted capitalisation within Al Fajer Re’s combined retakaful and shareholders’ fund; however, in A.M. Best’s opinion, this currently remains at a good level. Al Fajer Re’s level of risk-adjusted capitalisation was stabilized in 2012 following management’s actions to curtail new business growth and premium volumes, and similar action is expected in 2012. A.M. Best’s ratings take into consideration Al Fajer Re’s level of risk-adjusted capitalisation within the combined funds as capital available in the company’s shareholders’ fund can be accessible in order to support any potential future losses in the retakaful fund via a Qard Hassan.

A downgrading of Al Fajer Re’s ratings is likely if there is any further deterioration in the level of risk-adjusted capitalisation in its stand-alone retakaful fund or if the company experiences any further significant underwriting or investment losses. A stabilisation of the ratings is likely over the next 12 to 24 months if Al Fajer Re is able to perform in accordance with its business plans and generate profitable new business while maintaining an adequate level of risk-adjusted capitalisation.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides an extensive 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”; “Takaful (Shari’a Compliant) Insurance Companies”; “Assessing Country Risk”; and “Understanding Universal BCAR”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company.Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Europe – Rating Services Limited
Timothy Prince
Senior Financial Analyst
+(44) 20 7397 0320
timothy.prince@ambest.com
or
Mahesh Mistry
Associate Director
+(44) 20 7397 0325
mahesh.mistry@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
+(1) 908 439 2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
+(1) 908 439 2200, ext. 5644
james.peavy@ambest.com

Source: A.M. Best Europe – Rating Services Limited