Ratings Roundup: of Boubyan Takaful, National General

May 3, 2013

A.M. Best Europe – Rating Services Limited has revised the outlook to stable from positive and affirmed the financial strength rating of ‘C++’ (Marginal) and the issuer credit rating of “b” of Boubyan Takaful Insurance Company KSC (CLOSED), which is based in Kuwait. Best has withdrawn the ratings as the company has requested to no longer participate in its interactive rating process. Best said the “revised outlook reflects Boubyan’s decision not to ring-fence assets in favor of policyholders.” As per Best’s “Takaful (Shari’a Compliant) Insurance Companies criteria, the risk-adjusted capitalization of Boubyan’s policyholders’ fund remains weak. Additionally, recent management turnover adds uncertainty to the future performance of the company. Boubyan has experienced volatile operating results and is a small player in the Kuwaiti market.”

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating of “bbb+” of National General Insurance Company (P.S.C.)(NGI), which is based in the United Arab Emirates. The outlook for both ratings is stable. The ratings reflect NGI’s “strong risk-adjusted capitalization, good track record of overall profitability and established domestic franchise. An offsetting rating factor is NGI’s developing level of enterprise risk management (ERM),” Best explained. NGI’s prospective risk-adjusted capitalization is “likely to remain strong,” the report continued. “The company is expected to maintain a good balance between earnings retention and profit distribution, supporting its projected business growth over the near term. NGI’s capital requirement is driven by its investment profile, which is concentrated in equities and real estate. At present, risk-adjusted capitalization is sufficient to absorb potential volatility in these higher risk assets.” Best also noted that NGI has “demonstrated a good track record of generating profits with return on capital and surplus averaging 12 percent in the last five years. In 2012, overall earnings rebounded to AED 46 million ($13 million), in line with NGI’s historical performance. NGI’s net income is supported by a good level of technical profitability across most business segments, returning a healthy combined ratio of 91 percent in 2012. Additionally, NGI’s investment yield stabilized in recent years at 1.5 percent (when excluding realized and unrealized gains). NGI is the seventh-largest insurance company in the UAE on a gross written premium basis, with most of its business generated locally. NGI’s premium revenue is well diversified on a gross basis and skewed towards motor, medical and life businesses on a net basis. Furthermore, NGI retains 67 percent of its overall premium revenue, one of the highest retention levels in the market.” Best also explained that the company “started developing a risk management framework in 2010.” However, Best added that it “perceives current risk management to be marginal in relation to its risk profile.” In addition Best said it would “monitor NGI’s reserve position going forward, given that its net loss reserve to net written premium ratio has decreased to its lowest level in 2012. Going forward, negative rating pressure could result from a deterioration in NGI’s overall performance or material weakening in its risk-adjusted capitalization. Upward movement is likely to emanate from a developed and integrated ERM framework.”

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