A.M. Best Affirms Ratings of Gulf Insurance Company K.S.C. and Gulf Life Insurance Company K.S.C. (Closed) [Professional Services Close – Up]

A.M. Best Europe - Rating Services Limited has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Gulf Insurance Company K.S.C. (GIC) (Kuwait) and its subsidiary, Gulf Life Insurance Company K.S.C. (Closed) (GLIC) (Kuwait).

The outlook for all ratings remains stable.

The ratings reflect GIC's good regional business profile, good level of overall profitability and supportive level of risk- adjusted capitalisation. A partially offsetting factor includes the company's volatile investment performance in recent years.

Furthermore, the ratings of GLIC reflect a rating enhancement from GIC, given the implicit support received, in addition to its sound business profile within Kuwait and a good level of technical profitability.

GIC's good business profile is demonstrated by its strong competitive position within a number of countries in the Middle East North Africa (MENA) region. In addition to GIC's stand-alone and GLIC's strong position in Kuwait, a strong market position is also maintained in Bahrain and Jordan via GIC's subsidiaries, Bahrain Kuwait Insurance Company B.S.C. and Arab Orient Insurance Company. Additionally, in Egypt, GIC has a good market position through its subsidiary, Arab Misr Insurance Group S.A.E. and through its recently acquired subsidiary in Iraq, Dar Al Salaam Insurance Company. Going forward, A.M. Best expects GIC to maintain a strong business profile in the region, expanding through acquisitions and reinforcing its position in its core markets.

Underwriting profits have remained strong in recent years and have been the driver of pre-tax profits. In 2011, GIC reported underwriting profits of KD 9.8 million (USD 35.4 million), an increase of 15 percent compared to 2010, with the combined ratio remaining low at around 83 percent. Profit before tax of KD 9.4 million (USD 33.7 million) in 2011 was 5 percent lower than in the same period last year, but still strong as demonstrated by GIC's return over adjusted capital and surplus of 13.2 percent. Furthermore, GLIC's overall earnings totalled KD 1.2 million (USD 4.2 million) and represented 13 percent of the group's total.

GIC's level of risk-adjusted capitalisation is adequate. It benefits from a group wide reinsurance program of good credit quality and a good level of business leverage. In the first quarter of 2012, risk-adjusted capitalisation has improved. As per a new risk management strategy, the company has decided to de-risk part of its equity portfolio, reducing the demand for capital. However, overall allocation of investments into equities is still high and perceived to be the main source of a capital requirement.

Furthermore, GIC's investment performance is prone to volatility given its exposure to equities, real estate and funds in addition to the exposure in foreign currencies. Unrealized and impaired losses totalled KD 10 million (USD 36 million) in 2011, including losses through the income statement and investment revaluation reserves. Prospectively, investment performance is likely to continue to create volatility within GIC's portfolio.

Upward rating movement could be driven by continued improvement in GIC's key metrics, including its risk-adjusted capitalisation, operating performance and risk management.

A deterioration of GIC's risk-adjusted capitalisation resulting from either excessive growth given its expansion plans or a substantial deterioration in its financial performance could add negative pressure to the ratings.

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 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. A.M. Best Company is an insurance rating and information source.

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