Standard & Poor's Ratings Services said Saturday that it has assigned its ‘BBB' long-term counterparty credit and financial strength ratings to Riyadh-based Weqaya Takaful Insurance & Reinsurance Co. (Weqaya Takaful). The outlook is stable. The ratings reflect Weqaya Takaful's strong capitalization and investments, and prospectively satisfactory competitive position and operating performance. Partially offsetting factors include the company's limited operational track record since its start-up in mid-2010, and the increasingly competitive nature of the Saudi Arabian insurance sector. The financial strength at Weqaya Takaful is underpinned by strong capitalization relative to still limited underwritten risk. Cash-orientated investment strategies, whereby approximately 75 percent of investment assets continue to be held as cash or near-cash, further support capitalization. As of end-September 2011, the company reported shareholders' funds of SR132 million ($35.2 million). This is two-thirds of the initial SR200 million of shareholders' funds held by the company after its April 2010 IPO on the Riyadh Tadawul stock exchange. The stable outlook reflects our expectation that Weqaya Takaful will create a sustainable, increasingly profitable business position for itself in the competitive but expanding Saudi Arabian life and non-life insurance markets, over the two-year outlook period. However, S&P's said current capitalization strongly offsets the insurance risk inherent in the SR49.2 million of net premium written over the first nine months of 2011, anticipating that “both capitalization and reserving will remain strong as insurance exposures increase.” “We also expect the competitive position of Weqaya Takaful to continue the steady improvement witnessed in 2011, with particularly robust premium growth anticipated for the current fourth quarter. This ongoing improvement is derived from what we view as the new company's clear differentiation in the Saudi Arabian market. We base our assumption on the combination of its advanced use of technology, its independence from any dominant owner or institution, and its explicitly Shariah-compliant, takaful mode of operation. Combining these competitive strengths with the local market knowledge of the senior management team, Weqaya Takaful will be able to successfully negotiate distribution agreements with bank alliances, it said. Although operating performance at present remains marginal - cumulative losses of SR25 million have been reported for the nine months to Sept. 30, 2011, it said, forecasting that the company will start to generate positive returns in the fourth quarter of 2011, and report increasingly satisfactory earnings during 2012. Moreover, by means of retained shareholder profits, the company is seen to have increased its capital back to the original IPO level of SR200 million by the end of 2013, S&P's added.
