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A.M. Best has assigned a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” to Al Ahleia Insurance Company S.A.K.P. (AAIC) (Kuwait).
The outlook assigned to these Credit Ratings (ratings) is stable. The ratings assigned to AAIC reflect the company’s good business profile, track record of excellent underwriting performance and solid risk-adjusted capitalisation.
AAIC’s good business profile on the direct market in Kuwait was enhanced and diversified following the acquisition of Kuwait Reinsurance Company K.S.C.P. (Kuwait Re) in the second half of 2015. This acquisition has served to significantly increase and diversify geographically AAIC’s premium base, with consolidated gross written premium (GWP) having nearly doubled to KWD 61.8 million in 2016 compared with KWD 32.1 million, pre-acquisition in 2014. Kuwait Re has reinsurance operations spanning the Middle East and North Africa, Asia-Pacific and Central and Eastern Europe, providing proportional, non-proportional and facultative solutions to its cedants, and wrote GWP of KWD 29.4 million in 2016. In Kuwait, AAIC is a leading direct insurer and an established top four player in the market, writing a portfolio of commercial and personal risks, including motor, medical and life business. AAIC’s market position in Kuwait is supported by its focus on commercial segments, in which it maintains robust market shares, as opposed to the highly competitive motor and medical classes. For 2016, AAIC’s direct GWP arising from Kuwait reached KWD 32.3 million.
AAIC has a track record of excellent technical performance on its direct insurance operations in Kuwait. The company realised a pre-acquisition five-year average (2010-2014) non-life combined ratio of 52 per cent for these operations, and has maintained a similar level of strong technical performance post-acquisition. This is viewed as a significant element underpinning the ratings. AAIC’s technical performance in Kuwait has been driven by solid technical control of its direct operations, whilst benefiting from favourable inward reinsurance commissions that serve to offset its expense base. Following the acquisition of Kuwait Re, AAIC’s consolidated technical margin has reduced, with the company reporting a consolidated non-life combined ratio of 90 per cent for 2016 (first full year of consolidation), reflective of a less favourable loss experience and increased acquisition costs at Kuwait Re’s level. Whilst the acquisition of Kuwait Re is anticipated to generate some volatility in AAIC’s consolidated technical performance, A.M. Best expects actions taken by the group to translate into improved consolidated technical performance over the coming years.
AAIC’s risk-adjusted capitalisation is considered as solid. Consolidated capital consumption continues to be driven by investment risks, as a result of significant exposures to equities and unquoted funds, although increased premium retention arising from Kuwait Re’s substantially retained reinsurance portfolio has increased the underwriting risk for the group. Whilst the acquisition of Kuwait Re has served to introduce some strain on AAIC’s balance sheet strength, consolidated risk-adjusted capitalisation remains at a solid level. A.M. Best notes the actions the group is taking to de-risk the balance sheet, and expects these to translate into an improved risk-adjusted capitalisation in the medium term.
Partially offsetting AAIC’s ratings is the limited nature of the group’s enterprise risk management (ERM) framework. Whilst AAIC and Kuwait Re have in place risk management frameworks and capabilities considered adequate for their specific risk profiles, a comprehensive group-wide ERM framework is not yet established, which drives A.M. Best’s limited assessment of the group’s ERM framework.
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