S&P Lowers, Withdraws Ratings on First Takaful

Standard & Poor’s Ratings Services lowered its counterparty credit and financial strength ratings on Kuwait’s First Takaful Insurance Co. to ‘BB-‘ from ‘BB+’, and assigned the ratings a negative outlook. S&P then withdrew the ratings on First Takaful at the company’s request, and no longer surveys the company’s financial conditions

S&P explained that the downgrade and negative outlook “reflect our view of the company’s increasingly marginal capitalization. We are concerned by the speed with which the combined shareholders’ and policyholders’ capital has eroded since 2008.

“In the first quarter of 2011 it stood at Kuwaiti dinar (KWD) 6.1 million [$22.183 million] (FY2010: KWD6.8 million [$24.73 million]; FY2009: KWD9.9 million [$36 million]; FY2008: KWD11.6 million [$42.185 million]). First Takaful posted an overall net loss of KWD3.4 million [$12.365 million] in 2010 (loss of KWD1.3 million [$4.728 million] in 2009), which wiped out a third of its combined capital. The negative results have continued in Q1 2011–the company posted a net loss of KWD 0.6 million [$2.182 million].”

S&P noted that “motor [automobile] insurance (including third-party liability) has been a major cause of these losses, in our view. The motor market has become progressively more competitive in recent years.

“However, First Takaful’s necessary and gradual withdrawal from its major and loss-making business line has further impaired its marginal competitive position, making it increasingly difficult for the company to cover its fixed-cost base.

“As the capital base erodes, Standard & Poor’s is concerned about the quality and liquidity of the company’s investments, part of which was locked at year-end 2010 into land under development (14 percent of total investments), investments in affiliates (2 percent), and unlisted equity securities and managed funds (36 percent).”

Source: Standard & Poor’s