Kuwait-based Wethaq Takaful Insurance Co. K.S.C. rated 'BBB-'; outlook stable

The outlook is stable.

The ratings on Wethaq reflect its strong capitalization and good financial flexibility.

Offsetting factors are a marginal competitive position, aggressive investment strategy, and only adequate earnings.

Wethaq is listed on the Kuwait Stock Exchange and is owned 67.9% by The Investment Dar (TID; not rated), a Kuwaiti Islamic finance shareholding company.

Wethaq was established in 2000 as a takaful (Islamic Sharia-compliant insurance) player, with a primary focus on the Kuwaiti market.

Gross premiums written (GPW) were only Kuwaiti dinar (KD)4.3m (€10.9m) in 2007, mostly in property/casualty (88% of GPW). Life and health businesses represented 12% of GPW.

"The stable outlook reflects our expectation that Wethaq will maintain strong capitalization and good financial flexibility, while gradually improving its earnings quality in 2009 and 2010," said Standard & Poor's credit analyst Lotfi Elbarhdadi.

"We expect Wethaq's competitive position to remain marginal over the same horizon, although we expect much higher growth compared with that of the past five years.

Wethaq should achieve at least 30% growth per year in 2009 and 2010, while premiums for 2008 should be at the same level as those for 2007.

We expect Wethaq's shareholder to remain committed to supporting the company's growth and maintaining strong capitalization.

Wethaq is heavily invested in local equities and particularly nonlisted equities and funds.

This weakens the company's financial profile, although the investments yielded adequate returns in the past five years.

The company has not yet developed solid risk management practices to monitor its equity exposures, and relies mostly on its shareholder's expertise in that field.

Owing to Wethaq's current profile, an upgrade is unlikely over the rating horizon.

We would however change the outlook to negative if the company does not reach the above-mentioned operating performance levels and growth targets in 2008 and 2009.

Any apparent change in the shareholder's support to Wethaq would also result in a negative rating action.