Dubai insurer Salama rated 'BBB+'; subsidiary best re upgraded to 'BBB+'; outlook stable

At the same time, the long-term counterparty credit and insurer financial strength ratings on the 100%-owned, Tunisia-based reinsurance subsidiary, B.E.S.T. Reinsurance Co. (Best Re), were raised to 'BBB+' from 'BBB'. The outlook on both entities is stable.

Salama/IAIC is a Dubai-listed insurance operating company that is parent to a group of insurance and reinsurance companies, including Best Re, that operate in an explicitly Sharia-compliant manner (that is, takaful insurance and retakaful reinsurance). The group is the largest takaful and retakaful group in the world, and increasingly uses the Salama or Salama Group brand. Moreover, it is the first purely takaful group to be rated by Standard & Poor's.

"The ratings on Salama/IAIC reflect a secure financial profile that is based on a good, well-diversified competitive position, strong earnings, and strong capitalization," said Standard & Poor's credit analyst David Anthony.

Best Re is now assessed as strategically core to its newly rated parent and, as such, the ratings have been raised to the parent level. Standard & Poor's believes that all core group members implicitly benefit from the support of a key group of highly influential and supportive shareholders within the overall shareholder base. Partially offsetting these strengths, however, is the absence of a clear track record in the current group configuration, the uncertainties and execution risks attaching to management's ambitiously expansive strategies, and generic economic and industry risks confronting all operators in the economies of the Arabian Gulf region, which are still dependent on energy income.

The stable outlook reflects Standard & Poor's expectation that financial ratios and risk management standards at least consistent with the current ratings will be maintained. Approximately 20% year-on-year premium growth is forecast, deriving initially from growth in inward reinsurance and in Saudi Arabian and Algerian retail insurance, but also through acquisitions and development of life and health business in the medium term. Capitalization will remain at least strong, with strong earnings also, as indicated by combined ratios below 95%, RORs above 15%, and ROEs above 12%.

Upside potential for the ratings may increase if already large and diversified premiums also give rise to a track record of strong and diversified earnings. Downward pressure could develop were rapid growth to dilute underwriting standards, or if expenses were to rise excessively. Downward pressure could also result if risk management failed to keep pace with the increasing complexity of the group.