Gulf Insurance Group's (GIG) liquidity position has required continuous support from short-term debt financing. However, its balance sheet continues to benefit from a comprehensive reinsurance programme supported by well-rated counterparties, notes AM Best.
GIG has reduced its dependence on borrowings in 2019 through the use of a financial solutions transaction with its major reinsurer, which has alleviated some pressure on working capital.
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a” of GIG and its subsidiary, Gulf Insurance and Reinsurance (Closed) (gig-Kuwait), both domiciled in Kuwait.
The credit ratings (ratings) reflect GIG’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
AM Best says that the revision of the outlooks to negative reflects the worsening of the group’s consolidated balance sheet strength. Although risk-adjusted capitalisation remains at the strongest level, this and other balance sheet metrics have deteriorated in recent years, partially driven by accounting restatements that have reduced available capital, and an increase in capital requirements stemming from newly acquired subsidiaries and sizeable medical contracts in Kuwait. Despite pressure on risk-adjusted capitalisation, GIG has continued to distribute dividends.
GIG’s consolidated balance sheet also has been impacted by foreign exchange losses from subsidiaries operating different territories. The group possesses the tools and capabilities to manage its internal capital to support its operations; however, its response to certain issues has been slow.
GIG is amongst the largest and most diversified insurance groups in the Middle East and North Africa region, with market leading positions in Kuwait, Jordan and Bahrain, and a strong footprint in Egypt, Turkey and Algeria. The group has demonstrated a track record of strong operating performance, returning a five-year (2014-2018) average return on equity of 13%, despite extraordinary accounting adjustments deflating net profits in 2016 and 2017. GIG’s earnings are anchored by its technical account, which has generated a solid five-year (2014-2018) average combined ratio of 91%.
gig-Kuwait is a composite insurer with a leading position in Kuwait’s insurance market. The company is strategically important to GIG and strongly integrated into its operations.