Kuwait-based Wethaq Takaful Insurance Co. ratings lowered to 'BB'; outlook negative

At the same time, we removed these ratings from CreditWatch with negative implications, where they were placed on May 27, 2009. The outlook is negative.

"The rating action reflects both the uncertainties regarding the impact of the troubles at parent Investment Dar (Dar) on Wethaq, and Wethaq's weakening financial and business profile,"

said Standard & Poor's credit analyst Lotfi Elbarhdadi.

The downgrade also reflects Wethaq's marginal stand-alone financial strength owing to its marginal competitive position and aggressive investment strategy. Factors supporting the rating are good risk-based capital adequacy and adequate operating performance.

"The negative outlook reflects remaining pressure on Wethaq's financial and business profile at the current ratings level," said Mr. Elbarhdadi.

We expect Wethaq's competitive position to remain marginal, suffering from stiff competition. In addition, uncertainties remain regarding the outcome of troubles at Dar. We believe these are likely to have a negative impact on Wethaq's business and financial profile, although in our opinion, Wethaq's independent balance sheet and regulated insurance company status could minimize this impact.

Our expectations factor in our opinion that Wethaq is likely to maintain good capitalization and an adequate operating performance. We expect Wethaq to maintain at least "good" capital adequacy based on our risk-adjusted capital adequacy criteria. The company should post a 105% to 110% net combined ratio in 2009. Finally, Wethaq should post flat growth in 2009 compared with 2008.

We would lower the rating if the company does not reach the above-mentioned targets in 2009, or if the outcome of its parent's restructuring is more negative than we expect. We may revise the outlook to stable if Wethaq exceeds the above targets, and ultimately survives its parent's troubles financially and operationally unscathed.