LONDON--()--A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of C++ (Marginal) and an issuer credit rating of “b” to Boubyan Takaful Insurance Company K.S.C. (Closed) (BTIC) (Kuwait). The outlook assigned to both ratings is positive.
The ratings of BTIC reflect its strong risk-adjusted capitalisation on a consolidated basis (shareholders’ and policyholders’ funds), sound, yet somewhat untested, distribution lines through its shareholders and the efforts currently being made by management to introduce best practices throughout the firm. However, the ratings are tempered due to the weak capitalisation of the policyholders’ fund, the company’s poor performance since its incorporation, the lack of governing documentation with regard to the takaful model and the country risk associated with Kuwait.
The positive outlook on the ratings acknowledges A.M. Best’s expectations that the policyholders’ fund is to be independently capitalised in the next 12 months through the ring-fencing of assets, as well as general improvements, which are being made in terms of governance and risk management.
Established in 2006 as part of the Boubyan Bank Group, BTIC’s consolidated performance has been fairly weak to date, largely as a result of negative fair value adjustments on its investments in the shareholders’ account. The company’s technical performance has been mixed with technical profits in its life account, generally offsetting losses in the general account.
BTIC is currently embarking on a change in strategy, away from price-driven broker business and towards a multi-channeled distribution approach including captive business from its group partners, which includes Boubyan Bank and National Bank of Kuwait. Whilst growth plans appear ambitious given the company’s modest domestic franchise, it appears to be on track to deliver growth in contributions of around 80%.
In the absence of any specific company acts or local regulation with regard to takaful companies, A.M. Best puts more emphasis on the stand-alone capitalisation of the policyholders’ fund than the consolidated position. Thus, while A.M. Best notes that the consolidated risk-adjusted capitalisation of the company is strong, limited capital is located in the policyholders’ fund itself, which is a substantial drag on the assigned ratings.
A.M. Best views positively the efforts made by new management to implement best practices within the company. In A.M. Best’s opinion, there is a lack of documentation supporting the governance of BTIC’s takaful model and the interaction between policyholders’ and shareholders’ funds.
The ratings of BTIC also incorporate the perceived risk associated with operating within Kuwait. A.M. Best currently places Kuwait in country risk tier three (CRT-3), with political risks ranked as moderate and economic and financial system risks ranked as low.
Positive actions on BTIC’s ratings are likely to be driven by improvements in governance and operations as well as, more significantly, the stand-alone capitalisation of its policyholders’ fund. Negative rating actions are considered to be unlikely but may occur should the company’s performance not develop in line with A.M. Best’s expectations.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Understanding Universal BCAR”; “Takaful (Shari’a Compliant) Insurance Companies”; “Understanding BCAR for Life/Health Insurers”; and “Assessing Country Risk”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
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