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S&P: Al-Ahleia Insurance ratings raised to 'A-' on very strong capital and earnings; outlook stable

July 31, 2014

Standard & Poor's Ratings Services said that it raised its counterparty credit and insurer financial strength ratings on Al-Ahleia Insurance Co. S.A.K. to 'A-' from 'BBB+'. The outlook is stable.

"The upgrade reflects our view of Ahleia's continued very strong capital and earnings, which has led us to revise upward our financial risk profile assessment for the insurer to strong from moderately strong. As we continue to assess its business risk profile as satisfactory, we have revised upward Ahleia's anchor to 'a-'. Other factors remain neutral to the rating.

"In our opinion, Ahleia has extremely strong risk-based capital adequacy that is resilient to the potential volatility of its investment portfolio, which leans heavily toward equity funds. At the end of 2013, Ahleia's capital base was KWD 93 million ($320 million) and we expect this to continue to grow as the insurer continues to deliver strong profitability, above the local market averages. Our base-case scenario is that premium income will increase at seven per cent per year, in line with market norms, with a combined ratio (a measure of claims losses plus expenses) below 80 per cent and net earnings of at least KWD 7.5 million, representing a return on equity of eight per cent. 

"We assess Ahleia's risk position as moderate, with very high investment leverage. As of Dec. 31, 2013, equity and strategic investments, which we view as highly volatile instruments, were 97 per cent of shareholder funds. Ahleia is also a relatively high user of reinsurance, and there is a potential risk to the continuity of those important relationships. Our rating expectation is that investment leverage will not materially increase, and reinsurance relationships will be sustained and supported through ongoing profitability for all participants.

"We assess Ahleia's business risk profile as satisfactory, which reflects our view of the intermediate industry risk the insurer faces in Kuwait, where it is the leading marine insurer and outperforms the market in terms of technical profitability.

"Our assessments of management and governance and enterprise risk management are neutral to the rating. We see Ahleia's liquidity as exceptional, and we anticipate that this will be maintained.

"The stable outlook reflects our view that our assessments of Ahleia's business and financial risk profiles are unlikely to change over the next two years. We anticipate that capital adequacy will remain extremely strong and resilient to any earnings pressure, and we expect Ahleia's technical profitability to remain high. We also anticipate that its risk position will remain moderate, but this assessment is sensitive to any changes in the asset mix in Ahleia's investment portfolio.

"We view a downgrade as currently unlikely, given the strength and sustainability of Ahleia's capital and earnings. However, we could consider lowering the ratings if we see any weakening of the insurer's risk position, through changes to the asset mix, or if its earnings are materially lower than we expect."

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Source: CPI Financial

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