A.M. Best Affirms Ratings of Bahrain Kuwait Insurance Company B.S.C.


A.M. Best Affirms Ratings of Bahrain Kuwait Insurance Company B.S.C.

has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-” of (BKIC) (Bahrain). The outlook of both ratings remains stable.

The ratings of BKIC reflect its strong risk-adjusted capitalisation, excellent track record of technical profits and excellent domestic franchise. However, the ratings also take into account the developing nature of the company’s enterprise risk management (ERM) framework, its reliance on reinsurers and the country risk associated with Bahrain. The ratings also benefit from an enhancement due to BKIC’s position and importance within the (GIC) group.

In A.M. Best’s opinion, BKIC enjoys an excellent domestic franchise in Bahrain, where it ranks as the leading insurer by gross written premiums, and a prominent position in the Kuwaiti market. Furthermore, the company’s business profile is enhanced by its national status in Bahrain and Kuwait, allowing it access to governmental business in both countries. However, despite BKIC’s sound market position, business retention remains low at approximately 30%, highlighting its reliance on reinsurers for capacity and expertise.

In A.M. Best’s opinion, BKIC’s current and prospective risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio model, is strong, despite the increased risk associated with its new investment strategy, with sufficient room to absorb management’s anticipated business growth. A.M. Best expects BKIC’s risk-adjusted capital position to continue strengthening going forward as internal capital generation outpaces increased capital requirements driven by business growth.

BKIC has an excellent track record of profitability driven by its sound underwriting performance across all lines of business. In 2011, the company recorded net income of BHD 4.1 million (USD 11 million) and a very strong combined ratio of circa 67%, benefitting from inward commissions given its low retention levels. Moreover, net income has historically been supported by consistent investment returns due to BKIC’s conservative investment strategy, which traditionally was geared towards fixed income securities and deposits. However, the company has recently embarked on an exercise to increase the return on the portfolio—and thus accepting a higher level of risk—reallocating a significant proportion of its portfolio to debt and equity products. Despite this, A.M. Best expects management to continue with its prudent and conservative approach with regard to investments.

BKIC’s ERM remains fairly unsophisticated. However, whilst the company relies on its panel of reinsurers for certain expertise, BKIC has a good understanding and control of its underwriting risks. Going forward, BKIC’s risk management framework is likely to benefit from its position within the GIC group.

In recent years, GIC has been steadily increasing its shareholding in BKIC and currently owns a 56% majority stake. In A.M. Best’s opinion, BKIC is an important and well integrated member of the GIC group, which has recently embarked on a common branding strategy for all group members. Furthermore, GIC has supported BKIC and other group members through the negotiation of a common reinsurance treaty.

The ratings of BKIC incorporate the perceived risk associated with operating within Bahrain. A.M. Best assigned a country risk tier of three to Bahrain due to its moderate financial system, economic risks and high political risk.

Positive rating pressures are unlikely at present, and are likely to require a higher rating at the parent level before such action is considered. Downward pressure may occur should the financial position of BKIC deteriorate due to unforeseen shocks, or the country risk associated with Bahrain increases as per A.M. Best’s assessment.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Understanding Universal BCAR”; “Rating Members of Insurance Groups”; and “Evaluating Country Risk”. Best’s Credit Rating Methodology can be found at .