Kuwait-Based Al-Ahleia Insurance Co. ratings placed on CreditWatch Neg

05/08/2015 08:48 AST

Al-Ahleia's bid to acquire Kuwait Reinsurance Co. K.S.C. (Kuwait Re; not rated) has been approved by Kuwait Re's shareholders. This will see Al-Ahleia consolidate Kuwait Re's accounts. Al-Ahleia already owns 30 per cent of the reinsurer and with this deal it increases its stake to about 92 per cent.

According to Kuwait's Capital Markets Authority (CMA) rules, any party wanting to buy 30 per cent (or more) of a listed entity's shares, or that owns 30 per cent of shares but would like to increase its stake, should submit a compulsory offer to buy all outstanding shares at the same price and with the same conditions.

Currently, Standard & Poor's Ratings Services assess Al-Ahleia's risk-based capital adequacy as extremely strong. The CreditWatch reflects its view of the potential capital strain on the consolidated group, the extent of which will depend on the price Al-Ahleia pays for the shares. Moreover, Standard & Poor's Ratings Services sees only limited potential uplift to the business risk profile from this acquisition over its two-year outlook horizon. The purchase of Kuwait Re effectively doubles the premium base.

Al-Ahleia writes life and non-life insurance: 27 per cent and 73 per cent of premiums, respectively. In 2014, it had gross premiums written of Kuwaiti dinar (KWD) 31.5 million, representing a growth rate of about four per cent. Of those premiums, 23 per cent were marine and aviation, 36 per cent general accident, 14 per cent fire, and 27 per cent life and medical. Moreover, Al-Ahleia recorded a 20 per cent premium growth in the first quarter of 2015, writing KWD 10.8 million. It also posted a net profit of KWD 3.4 million.

Standard & Poor's Ratings Services will resolve the CreditWatch when further details emerge on the price that Al-Ahleia paid to acquire Kuwait Re's shares, and after it assesses the impact this will have on the consolidated group's capital and earnings. Upon resolution of the CreditWatch, Standard & Poor's Ratings Services could either affirm the ratings or lower them by one notch. It expects to provide another update on this within the next 90 days.

CPI Financial