Moody’s Investors Service, has today affirmed the Ba1 insurance financial strength rating (IFSR) of National Takaful Insurance Company K.S.C., based in Kuwait. The rating outlook was changed to stable from positive following the decline in the shareholders’ and policyholders’ (consolidated) equity in 2013.
National Takaful is one of the largest Takaful insurers in Kuwait and was established in 2003. It writes a broad mix of Takaful non-life, life and medical insurance. Moody’s Ba1 rating reflects National Takaful’s good position, with a top-three market share in the domestic Takaful market and a top-ten market share in the overall Kuwaiti insurance market, albeit with a total Kuwaiti market share of only around three per cent.
The rating affirmation also reflects the recent improvement in underwriting profitability, with the 2013 combined ratio improving to 98 per cent from 127 per cent in 2012, on a Moody’s basis. This has restricted further deterioration in the policyholders’ fund which reported an accumulated deficit of KWD 1.7 million in 2012 and 2013.
However the change in outlook to stable from positive reflects the decline in consolidated equity, driven by the KWD 1 million dividend distribution in 2013, with gross underwriting leverage increasing to 1.3x from 1x and 1.2x in 2012 and 2011 respectively. Although there has been no significant increase in high risk investments in 2013, the reduction in equity has also reversed the previous trend of improving the high risk assets to equity ratio, with high risk assets as a percentage of consolidated equity increasing to 51.3 per cent from the 43.9 per cent in 2012.
According to Moody’s, the rating could be upgraded if: i) there is further reduction in the exposure to real estate and/or other high risk asset classes; ii) profitability levels are improved, with returns on capital consistently exceeding eight per cent and/or combined ratios consistently below 100 per cent; and/or iii) National Takaful delivers improved product/geographic diversification.
Conversely, negative rating pressure could arise in the event that: i) National Takaful is unable to maintain its current profitability levels, for example with combined ratios above 110 per cent and/or consolidated net losses occurring; ii) National Takaful incurs further impairment losses or fails to reduce its investment exposure to real estate and equities;and/or iii) there is increased price competition within the Kuwait insurance market pressuring rates/premium volumes.