Kuwait, June 12, 2011: Capital Standards Rating Co. (CSR) has assigned an Insurer Financial Strength Rating (IFSR) of "BB-" and a national scale rating of "BBB-kw" to Boubyan Takaful Insurance Company K.S.C (Closed). The outlook for the rating is stable. This is the first time that CSR rates Boubyan Takaful.

CSR's rating reflects Boubyan Takaful's good capitalization and liquidity position relative to the risks underwritten. The rating also considers the strong shareholder support which has been instrumental in driving the company's business since its establishment. However, Boubyan Takaful is relatively a new company, and the rating is therefore constrained by its small market share and high cost structure. Investment losses impacting the company's profitability, to some extent, have also put a downward pressure on the rating.

Boubyan Takaful, established in 2006, operates as the Islamic insurance arm of Boubyan Bank, and is the first insurance company with the 'bancassurance' model in Kuwait. The company, which mainly operates in Kuwait, offers a number of takaful policies covering marine & aviation, general accident, motor vehicles and life insurance segments. However, motor vehicles and life insurance segments dominate a significant portion of the company's underwriting income contributing 43.7% and 24.8% respectively in FY 2010. In the same year, the company reported a combined ratio of 138.5% due to its high cost structure. High underwriting costs, driven by Boubyan Takaful's expansion plans, along with the intense competition in the Kuwait insurance market will continue to strain the underwriting performance in the near future. Nevertheless, CSR believes that Boubyan Takaful might be able to alleviate the challenges on its underwriting performance, if the company successfully implements its strategy of enhancing distribution network as well as product portfolio.

The company has good capitalization in relation to the insurance risk being underwritten. As of FY 2010, the solvency ratio was 25.9%, and the underwriting leverage stood at a low of 0.65x as compared to the total capital base. The investment strategy is relatively conservative as the company invests mainly in managed funds. While the investment portfolio is moderately diversified, the funds are exposed to market volatility and during the last two years the unrealized losses negatively impacted the profitability of the shareholders' account.

The outlook for Boubyan Takaful's rating is stable. CSR views Boubyan Takaful's strategy of maintaining adequate financial flexibility, and development of distribution network & product portfolio, as positive measures to improve market share and mitigate the intense competition in the Takaful sector. We anticipate that the company will continue to maintain adequate capitalization and conservative reserving practices. The rating could be upgraded in the future if Boubyan Takaful is able to gain a competitive position by garnering substantial direct market share. On the other hand, the rating may be lowered if there is further deterioration in the underwriting performance, or a significant increase in high risk assets, which could negatively impact the company's capital adequacy.

According to CSR's national scale, the rating of 'BBB-kw' reflects Boubyan Takaful's credit worthiness relative to its domestic peers. CSR developed the National Rating Scale to facilitate the assessment of rated entities in the country, giving Kuwaiti and foreign investors a tool to make finer credit distinctions between local issuers.

The methodology used in rating Boubyan Takaful Insurance Company is "Insurance Methodology" and "Rating Approach for Takaful". These can be found at www.capstandards.com in the 'Methodologies Brief' sub-directory under the 'Rating' tab.

-Ends-

Contacts:
Ms. Victoria Monteiro, Tel: +965 22258822, ext.514, email - v.monteiro@capstandards.com;

Ms. Aminah Abotalaf, Tel: +965 22258822, ext.514, email - a.abotalaf@capstandards.com

Additional information is available at www.capstandards.com A detailed Credit Opinion Report, explaining the key rating considerations along with an in-depth financial analysis is available for CSR's subscribers.

© Press Release 2011