A.M. Best removes from under review with developing implications Bahrain Kuwait Insurance Company
A.M. Best has removed from under review with developing implications and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Bahrain Kuwait Insurance Company B.S.C. (BKIC) (Bahrain).
In June 2017, BKIC’s ratings were placed under review with developing implications, following the company increasing its shareholding in Takaful International Company B.S.C. (TIC) (Bahrain) to 64 per cent, and making a mandatory offer to acquire the remaining outstanding shares from minority shareholders.
The rating actions follow the close of the mandatory offer period, and the completion of A.M. Best’s review of the ongoing integration plans and the financial position of BKIC. Following the completion of the mandatory offer period, BKIC acquired an additional 3.6 per cent of TIC, increasing its ownership share to 67.3 per cent. TIC is classified as a subsidiary of BKIC and has been fully consolidated into the company’s financial statements as of 30 June 2017.
BKIC has historically maintained a strong level of risk-adjusted capitalisation, benefitting from a conservative investment strategy and a low level of underwriting leverage. The transaction was funded fully through internal resources, and therefore did not result in additional financial leverage. Given the increase in underwriting and investment risks resulting from the transaction, BKIC’s consolidated risk-adjusted capitalisation is diminished, although it remains supportive of the ratings.
BKIC has a track record of excellent operating performance, driven by strong underwriting performance, as demonstrated by a five-year (2012 - 2016) average combined ratio of 78 per cent. TIC’s technical profitability has not been as strong, and prospective performance will be dependent on BKIC’s ability to introduce its underwriting philosophy to the subsidiary and the level of expense synergies that can be achieved. During the first half of 2017, BKIC reported a combined ratio of 95 per cent compared with 71 per cent in the same period in 2016. Whilst prospective underwriting performance may deteriorate on a consolidated basis, A.M. Best expects it to remain supportive of the ratings.
BKIC maintains an excellent domestic franchise in Bahrain, which has been strengthened following the acquisition of TIC. The transaction also provides BKIC with an additional distribution platform to attract Shar’ia-conscious customers. The company ranks as the leading insurer by gross written premiums in Bahrain and also holds a prominent position within Kuwait as a top five insurer.