A.M. Best Removes Ratings of Al Fajer Retakaful Insurance Company KSCC From Under Review

Dec 01, 2009

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Anandi Nangy-Kotecha
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OLDWICK, N.J., DECEMBER 01, 2009
A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of B++ (Good) and issuer credit rating of "bbb+" of Al Fajer Retakaful Insurance Company KSCC (Al Fajer Re) (Kuwait). The assigned outlook for both ratings is stable.

The ratings reflect the company's strong risk-adjusted capitalisation and its improved corporate governance. Offsetting factors are the lower than expected business growth and profitability. On June 18, 2009, A.M. Best downgraded the ratings of Al Fajer Re and placed them under review with negative implications. The rating action was reflective of the lack of management controls over the investment strategy and the high exposure (around 30%) of the company's total investments to The Investment Dar (TID), which defaulted in May 2009.

Since that time, Al Fajer Re has implemented corrective actions to improve its enterprise risk management and corporate governance concerning its investments activity. More clear and prudent investment guidelines and limits have been established, and the new corporate governance structure (including the new role of chief investment officer) enhances the level of management involvement and responsibility in the company's asset management, which will be tested going forward. Neither Al Fajer Re nor its ultimate parent company, Dubai Group, has exposure to Dubai World group entities' debt.

Improvements also have been achieved by TID and Global Investment House (the second shareholder of Al Fajer Re) in their respective debt restructuring plans.

In A.M. Best's view, Al Fajer Re's risk-adjusted capitalisation and liquidity position on a combined basis are (and expected to remain) strong and supportive of the current ratings. Capital preservation benefits also from the new prudent investment strategy, which limits the investment concentration as well as the exposure to corporate securities and equity.

On a stand-alone basis, the policyholders' fund is further protected by a trust deed of KWD 25 million (half of the paid capital), in addition to the Qard Hassan (interest free loan) provided by the shareholders to cover participants' losses.

The economic crisis and shrinking business opportunities hit Al Fajer Re's reinsurance portfolio and, in A.M. Best's opinion, the company's gross written contributions are unlikely to grow by 40% as projected in 2009-2010 (despite its ability to maintain almost entirely the business susceptible to the June downgrade of its ratings). On the technical profitability side, some major storms that occurred in 2009 in Central and Eastern Europe and Turkey are likely to impact the company's year-end combined ratio, which A.M. Best expects to remain above 100%. On the non-technical side, in A.M. Best's view, the new conservative strategy restrains the potential return from investment.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.

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