Wethaq Takaful Insurance Co. rated BBB

CPI Financial :Standard & Poor's has assigned its BBB- long-term counterparty credit and financial strength ratings to Kuwait-based insurer Wethaq Takaful Insurance Co. K.S.C.(Closed). The outlook is stable.

S&P said the ratings on Wethaq reflect its strong capitalisation and good financial flexibility. Offsetting factors are a marginal competitive position, aggressive investment strategy, and only adequate earnings.

Wethaq is listed on the Kuwait Stock Exchange and is owned 67.9 per cent by The Investment Dar, a Kuwaiti Islamic finance shareholding company. Wethaq was established in 2000 as a Takaful player, with a primary focus on the Kuwaiti market. Gross premiums written (GPW) were only $16 million in 2007, mostly in property/casualty (88 per cent of GPW). Life and health businesses represented 12 per cent of GPW.

“The stable outlook reflects our expectation that Wethaq will maintain a strong capitalisation and good financial flexibility, while gradually improving its earnings quality in 2009 and 2010,” said Standard & Poor’s credit analyst Lotfi Elbarhdadi. “We expect Wethaq's competitive position to remain marginal over the same horizon, although we expect much higher growth compared with that of the past five years.

Wethaq should achieve at least 30 per cent growth per year in 2009 and 2010, while premiums for 2008 should be at the same level as those for 2007. S&P said it expects Wethaq's shareholders to remain committed to supporting the company's growth and maintaining strong capitalisation.

Wethaq is heavily invested in local equities and particularly non-listed equities and funds. This weakens the company's financial profile, although the investments yielded adequate returns in the past five years. The company has not yet developed solid risk management practices to monitor its equity exposures, and relies mostly on its shareholder's expertise in that field.

Owing to Wethaq's current profile, an upgrade is unlikely over the rating horizon. S&P said it would change the outlook to negative if the company does not reach the above-mentioned operating performance levels and growth targets in 2008 and 2009. Any apparent change in the shareholder's support to Wethaq would also result in a negative rating action.