Capital Standards Rating upgrades First Takaful Insurance to BB

Outlook remains Stable

28/03/2014 05:37 AST

Kuwait-based Capital Standards Rating (CSR) has upgraded First Takaful Insurance Company's (FTIC) Insurer's Financial Strength Rating (IFSR) to 'BB' and national rating to 'BBBkw'. The outlook for the rating remains Stable.

The rating upgrade is supported by First Takaful Insurance Company's strong market position along with improvements in the underwriting performance as well as reduction in high risk assets of the company. The national rating of BBBkw reflects FTIC 's strong market position and financial strength with respect to its peers in Kuwait, where the company has maintained its market position with growth in Gross Premiums Written (GPW) amid intense competition. FTIC is one of the largest and oldest Takaful companies in Kuwait, established in 2000. FTIC's product offering cover Takaful policies such as marine, general accident, motor vehicle, fire and life insurance segments. The company's top line is dominated by the non-life segments in Kuwait. FTIC's underwriting revenue has been concentrated primarily in the motor vehicle and fire segment. The company has a strong market position, with 12.69 per cent market share in Takaful segment and 2.76 per cent in the insurance market of Kuwait as of FY2012.

The company has been able to improve its underwriting performance, which supports the rating. The loss ratio declined substantially from 63.71 per cent in FY2012 to 36.48 per cent in 3Q2013. The decline was attributed to the reduction in claims, growth in GPW's and lowering of reinsurance exposure. This decline in loss ratio has improved the underwriting performance. FTIC also adopts a conservative reserving strategy which helps in protecting it against any unexpected occurrences of huge claims.

FTIC 's investment portfolio has also witnessed a significant decline in the high risk assets as a percentage of total invested assets, which declined from 55.99 per cent in FY2011 to 20.45 per cent in FY2012. The company is now focusing on recurring income generating investments which is considered to positively support the rating. It is important to note that FTIC is reducing its debt which is expected to further strengthen the financial flexibility of the company.

Furthermore, a few changes observed in the FY2012 financials of the company are mainly influenced by the non-cash transaction of sale of associates from the policyholder's account to the shareholder's account, which are not considered to support the rating. In addition, the rating is constrained by the high costs of the insurance operations which affect the overall profitability of the company. The company is also striving to move towards stable recurring income generating investments as the current cash flow coverage is considered to be weak. The stable outlook for the rating reflects CSR's expectations that the company will maintain its current pace of insurance operations with growth in GPW's aiding to maintain its current market position. The changes in the investment portfolio are expected to improve the cash flows which will positively support the earnings and the overall financial flexibility of the company. FTIC's strong ownership support and improved underwriting performance further reinforces the stable outlook.

The national rating of BBBkw is not capped by the sovereign rating of Kuwait. CSR developed the National Rating Scale to facilitate the assessment of rated entities in the country, giving local and foreign investors a tool to make finer credit distinctions between local issuers.

CPI Financial