S&P revises insurer Al-Ahleia outlook to stable

23/01/2010 00:00 AST

Standard & Poor''s (S&P) Ratings Services said on Friday it revised its outlook on Kuwait-based composite insurer Al-Ahleia Insurance Co. S.A.K. (Ahleia) to stable from negative. At the same time, the ''BBB+'' long-term counterparty credit and insurer financial strength ratings on Ahleia were affirmed.

"The outlook revision reflects Ahleia''s altered approach to investment and capital management, in our view, which we believe can reduce capital volatility and help the company maintain what we would regard as strong capital," said Standard & Poor''s credit analyst Kevin Willis.

Capitalization was restored to a rating strength in 2009 after management promptly repaid several bank loans out of current cash flow and reduced asset concentrations, although the bulk of the portfolio remains heavily invested in equity. The ratings also reflect Ahleia''s strong technical earnings. In 2008, Ahleia demonstrated a strong, market-leading underwriting performance, reflected in a net combined ratio of 55 percent compared with 72 percent in 2007.

This improvement, which continued in 2009, stemmed mainly from a decline in the net loss ratio and an increase in commissions on reinsurance business, demonstrating the strong performance of the company''s reinsurers. In addition, the company has maintained strong liquidity. Liquid investments as of Sept. 30, 2009, covered net technical reserves 4.4x, slightly down from 4.6x in December 2008 and 6.5x in December 2007.

"The outlook is stable because we believe that Ahleia will likely maintain strong capitalization and reduce the volatility inherent in its investment portfolio," said Willis. "It also reflects the recovery of capital adequacy, in our view."

Ahleia''s arithmetical capital adequacy is sensitive to asset-value volatility, but S&P believes it is fundamentally strong. S&P also believes that Ahleia will likely continue to develop its good competitive position in Kuwait, but remain focused on commercial and life risks. Underwriting performance should remain strong, and the net combined ratio should remain very profitable.

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Agencies