A.M. Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Al Ahleia Insurance Company (AAIC). The outlook of these Credit Ratings remains stable.
The ratings reflect Al Ahleia Insurance Company’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Al Ahleia Insurance Company’s balance sheet strength is underpinned by risk-adjusted capitalization, which, as measured by Best’s Capital Adequacy Ratio, is considered at the strongest level, and good financial flexibility with the absence of financial leverage. An offsetting factor is the company’s significant holdings of private equity and real estate funds, which exposes its capital base to potential volatility.
A.M. Best expects investment risk to remain the main driver of consolidated capital requirements in the medium term, although management’s strategy to de-risk the balance sheet should translate into a more balanced investment profile and as a result potentially strengthen risk-adjusted capitalization.
The balance sheet strength assessment also considers Al Ahleia Insurance Company’s moderate dependence on reinsurance, as the high retention of reinsurance business written via Kuwait Reinsurance Company (Kuwait Re) partially dilutes the significant cession rate of AAIC’s direct portfolio.
Al Ahleia Insurance Company (profile) has achieved a five-year average return on capital of 9.6%, which has been supported by solid technical performance and positive, albeit volatile, investment earnings. Al Ahleia Insurance Company’s direct insurance portfolio has a track record of excellent underwriting performance, benefiting from favorable inward reinsurance commissions.
On a consolidated basis, technical margins are reduced by the lower profitability of reinsurance business underwritten by Kuwait Re, although the results remain at a strong level, with a combined ratio of 88.8% in 2017.
Prospective consolidated earnings are expected to be supported by the excellent performance of AAIC’s direct insurance operations, as well as benefiting from the strategic decisions implemented by Kuwait Re to rationalize its reinsurance portfolio.
AAIC’s profile was enhanced and diversified following the acquisition of Kuwait Re in the second half of 2015.
The company’s neutral business profile assessment is supported by its established position as a top four insurer in Kuwait’s direct market, with robust market shares in the commercial segment, coupled with the international diversification brought through its reinsurance arm, Kuwait Re, which has operations spanning the Middle East and North Africa, Asia-Pacific and Central and Eastern Europe.
On a consolidated basis, the AAIC group wrote gross written premium of KWD 72.5 million in 2017, with Kuwait Re contributing KWD 35.1 million.
Whilst AAIC and Kuwait Re have in place risk management frameworks considered appropriate for their specific risk profiles, a comprehensive group-wide ERM framework is still being developed by AAIC. As the group’s risk profile continues to develop, it will become increasingly important for AAIC to enhance its ERM capabilities, particularly in areas such as capital management and market risk.
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