LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Kuwait Reinsurance Company K.S.C.P. (Kuwait Re) (Kuwait). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect Kuwait Re’s balance sheet strength, which A.M. Best categorises as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
Kuwait Re’s balance sheet strength is underpinned by risk-adjusted capitalisation, which, as measured by Best’s Capital Adequacy Ratio (BCAR), is considered at the strongest level. The company’s balance sheet strength also benefits from prudent reserving practices and good levels of liquidity, as evidenced by a ratio of liquid assets to net technical reserves of 110% at the end of 2017. Capital consumption is driven by underwriting risks, due to high premium retention, and investment risks, as a result of exposure to private equity and real estate. These investment holdings expose the company’s capital base to volatility, which is considered an offsetting factor to the balance sheet strength assessment.
Kuwait Re benefits from a track record of adequate operating performance. The company’s return on equity for 2017 stood at 6.9%, in excess of the five-year average (2013-2017) of 4.7%, chiefly reflecting the volatility stemming from the underwriting activities over recent years. Whilst the balance of earnings has traditionally been skewed toward investment income, the implementation of strategic decisions to rationalise Kuwait Re’s operations, including a shift to more profitable business, is expected to translate into improved technical performance, which should reduce volatility in prospective operating results.
Kuwait Re’s neutral business profile is supported by good geographical diversification, with operations spanning the Middle East and North Africa, Asia-Pacific and Central and Eastern Europe. The company’s underwriting portfolio is also well-diversified by class of business, providing proportional, non-proportional and facultative solutions to its cedants. In 2017, Kuwait Re demonstrated significant progress in realigning its portfolio mix toward facultative and excess of loss business, with these two lines of business accounting for 58% of the KWD 35.1 million gross premium written during the year. In addition, whilst Kuwait Re has predominantly been a non-life reinsurer, increased diversification has arisen from the significant growth in the company’s life reinsurance operations in 2017.
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