The Kuwaiti Insurance Regulatory Unit's (IRU) new requirement that insurance and reinsurance companies obtain a minimum credit rating should increase market confidence in their financial strength and support further sector development, Fitch Ratings says.
The new law, issued on 15 January, states that insurers and reinsurers operating in the country must obtain a rating no lower than ‘BBB+’ from one of four named credit rating agencies (CRAs), a group that includes Fitch Ratings. This will be part of their annual governance, risk management and financial stability submissions to the IRU, with the respective rating documentation being submitted to the IRU no later than 30 June of each year.
The regulation does not specify that the rating must be public, but Fitch believes insurers and reinsurers may opt to publish ratings publicly, as doing so would enhance reputational benefits. This could enhance the sector’s transparency. Even if ratings are not publicly disclosed, there would still be some reputational benefits as policyholders and other market participants will have reasonable assurance that insurance companies permitted to operate in Kuwait are rated at ‘BBB+’ or higher.
The move follows other steps by the IRU to strengthen the regulatory framework in recent years. These include the introduction of new solvency margin and minimum capital requirements, and reinforced reporting standards that were unveiled in June 2022. The regulator has also toughened requirements for compulsory motor insurance lines to improve policyholders’ awareness of key terms and conditions, as well as introduced a QR code system for policy issuance to limit fraud.
Fitch assesses the regulatory environment in Kuwait as effective, but oversight is still developing. The new credit rating requirement could improve the sector’s aggregate best practices if it leads to smaller, less sophisticated insurers exiting the market. However, greater clarity is required around the implementation and enforcement of the new regime to assess this.
More detailed information around implementation could also help to clarify whether the rating requirement could add to risks faced by insurers whose credit profiles come under downward pressure and threaten to fall below the ‘BBB+’ threshold. Such risks could include the threat of regulatory sanctions or a loss of broker business.
Fitch believes any impact on pricing power is likely to be limited, as the market is already concentrated. It is dominated by Gulf Insurance Group, which accounted for over 60% of insurance sector revenue in 2024.
Kuwait’s insurance market is small by international standards, with total premiums of around $2.2bn in 2024. Products tend to be straightforward, dominated by health, motor, property and casualty, and travel insurance. Life insurance revenues accounted for only about 10% of revenue in 2024.