National reinsurer Kuwait Re has reported a 39% fall in net profit to KWD1.95 million (US$6.4 million) for the year ended 31 December 2016 from KWD3.2 million for the previous year.
In a statement lodged with the Kuwait Stock Exchange, the company said the decline in profits was because of foreign exchange losses and lower investment income due to a revaluation loss on investment property.
The reinsurer’s total operating revenue was KWD36.2 million in 2016, 13% lower than the KWD41.6 million in 2015.
Total assets fell to KWD103.5 million at 31 December 2016 from KWD106.1 million at the end of 2015.
In a report published in early February, A.M. Best noted that in 2016, Kuwait Re undertook further realignment of its portfolio mix toward facultative and excess of loss business to improve long-term profitability; although the rating agency expects this to be accompanied by a notable decrease in gross premium volume for the year, as the company reduces exposure to certain underperforming proportional segments.
Whilst the company has a track record of good operating performance, albeit interrupted by a marginal loss in 2014, the balance of earnings has been traditionally driven by investment income, with volatile technical performance considered a partially offsetting rating factor. Kuwait Re is taking strategic actions to reduce the volatility of its technical earnings and to improve its underwriting performance, though this may be challenging given the ongoing difficult reinsurance market conditions, the rating agency noted.
The agency affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Kuwait Re. The outlook of these Credit Ratings (ratings) remains stable. The ratings reflect Kuwait Re’s strong risk-adjusted capitalisation, diverse business profile and established enterprise risk management (ERM) framework, said A.M. Best.
However, a partially offsetting rating factor is the volatile underwriting performance over recent years. In addition, following the acquisition of the majority of Kuwait Re’s share capital by Al Ahleia Insurance Company (AAIC) in 2015, there have been a number of key management changes, giving rise to potential execution risk for Kuwait Re achieving its strategic plan.
The ratings also factor in an assessment of the financial strength of Kuwait Re’s ultimate parent, AAIC, which has maintained a solid level of risk-adjusted capitalisation after its acquisition of Kuwait Re, with the group’s consolidated financial strength benefiting from the diversification of risk exposures afforded by the integration of Kuwait Re. AAIC, as a direct insurer, has a leading domestic profile in Kuwait and a track record of excellent technical performance.
KWD1 = US$3.27