LONDON, 14 August 2015
A.M. Best has placed under review with negative implications the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Kuwait Reinsurance Company K.S.C.P. (Kuwait Re) (Kuwait).
The rating action follows the acceptance by the majority of Kuwait Re's shareholders of an acquisition offer by Al Ahleia Insurance Company S.A.K.P. (AAIC) (Kuwait), allowing AAIC to increase its shareholding to 92% from approximately 30%. The acquisition follows AAIC increasing its stake in Kuwait Re above the 30% threshold, thereby triggering a Capital Markets Authority rule requiring AAIC to submit an offer to the remaining stakeholders to acquire all the remaining shares in Kuwait Re. The acquisition is expected to be financed through a mixture of AAIC's internal funds and external borrowing.
Whilst the change in ownership is expected to have minimal impact on Kuwait Re's operations over the short term, A.M. Best will need to assess the financial strength of the new parent company. At present, AAIC's risk-adjusted capitalisation is deemed strong; however, there may be some strain post-consolidation, given that net written premiums are expected to increase by approximately 270%. Additionally, A.M. Best will need to understand the strategic direction of the group and how the insurance and reinsurance operations will be integrated.
Kuwait Re's rating fundamentals have remained sound during the first half of 2015. Whilst the top-line has remained stagnant, the combined ratio has been maintained below 100%. AAIC is a leading primary insurer based in Kuwait, with an excellent track record of underwriting profitability translating into a five-year average combined ratio below 60%.
A.M. Best expects to resolve the under review status when greater clarity is ascertained on the financial health of the parent company and the strategic direction of Kuwait Re.
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A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
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