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Saudi Arabia-Based Mediterranean & Gulf Cooperative Insurance and Reinsurance Co. Assigned 'A-' Ratings; Outlook Stable

· We expect Mediterranean & Gulf Cooperative Insurance and Reinsurance Co. ( MedGulf KSA) to maintain its position as one of the leading insurance companies in Saudi Arabia.
· Operating performance, liquidity, and financial flexibility at MedGulf KSA are strong, while capitalization is seen as good, relative to likely rapid business growth.
· We have therefore assigned 'A-' counterparty credit and financial strength ratings to the company.
· The stable outlook reflects our expectation that MedGulf KSA will further develop its already strong competitive position in Saudi Arabia, while maintaining strong operating performance and at least good overall capitalization.

LONDON (Standard & Poor's) May 18, 2011-Standard & Poor's Ratings Services said today that it assigned its 'A-' counterparty credit and insurer financial strength ratings to Riyadh-based Mediterranean & Gulf Cooperative Insurance & Reinsurance Co. ( MedGulf KSA). The outlook is stable.

The ratings reflect MedGulf KSA's strong domestic business position, its strong current and prospective operating performance, and its similarly strong, cash-oriented investment portfolio and liquidity. Partially offsetting factors include our assessment of capitalization as good, rather than strong, and also the general economic and industry risks of operating in the rapidly growing but highly competitive Kingdom of Saudi Arabia (KSA) insurance sector. In addition, investment yields remain low relative to inflation and to local taxation rates in the KSA.

MedGulf KSA is listed on the Riyadh Tadawul stock exchange. The company is one of the leaders in the KSA insurance sector, which comprises more than 30 companies. The company writes all classes of domestic business including life and group health, and is a specialist in commercial and industrial lines. It also maintains a large book of retail motor business. Management uses the reinsurance license to write local co-insurance, and only writes a very small book of cross-border business, all of which is KSA-related.

MedGulf KSA has been underwriting in Saudi Arabia since Jan. 1, 2009. As such, it is technically a start-up company. However, the company's business position, brand, and infrastructure are long-established. MedGulf KSA acquired by means of a portfolio transfer the substantial KSA assets and liabilities of Mediterranean & Gulf Insurance & Reinsurance Co. ( MEDGULF ) B.S.C. (closed) (MedGulf Bahrain), which had been operating in Saudi Arabia on an offshore basis since 1972.

The stable outlook reflects our expectation that MedGulf KSA will further develop its already strong competitive position in Saudi Arabia, while maintaining strong operating performance and at least good overall capitalization. Although we expect that premium growth in excess of 20% a year will increase the strain on existing capital over time, retained profits and prudent management will, in our opinion, help ensure continued strength of the company's financial profile and brand. We expect technical performance to remain broadly consistent with the current ratings, with prospective net combined ratios typically falling around or below 90%, return on revenues averaging 10% or more, and return on equity usually exceeding 10%-12%. Meanwhile, investment strategies are likely to remain prudent and cash-oriented. We also expect to see new distribution alliances with leading local banks.

Although we anticipate that the ratings will remain stable, we may take positive rating action if MedGulf KSA continues to be successful relative to competitors, if risk-based capitalization improves to strong levels, if planned enhancements to enterprise risk management are successfully implemented, and if the size and quality of its earnings continue to improve. Meanwhile, negative rating action could occur if the company's financial or commercial profiles display protracted weakening.
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