S&P Rates Dubai’s Salama ‘BBB+’; Upgrades B.E.S.T. Re to ‘BBB+’

Standard & Poor’s Ratings Services has assigned its “BBB+” long-term counterparty credit and insurer financial strength ratings to Salama/Islamic Arab Insurance Co. (P.S.C.) (Salama/IAIC), located in Dubai, United Arab Emirates. S&P also raised the long-term counterparty credit and insurer financial strength ratings on the 100 percent-owned, Tunisia-based reinsurance subsidiary, B.E.S.T. Reinsurance Co. (Best Re), to “BBB+” from “BBB.” The outlook on both entities is stable.

S&P noted that Dubai’s Salama/IAIC is the parent company 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.”

S&P credit analyst David Anthony noted that 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.”

S&P also explained that it now considers Best Re “as strategically core to its newly rated parent and, as such, the ratings have been raised to the parent level.” All of the core group members “implicitly benefit from the support of a key group of highly influential and supportive shareholders within the overall shareholder base,” S&P noted.

There are, however, some “offsetting factors connected to the group’s operations. S&P listed these as 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 S&P’s “expectation that financial ratios and risk management standards at least consistent with the current ratings will be maintained,” said the bulletin “Approximately 20 percent 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 percent, RORs above 15 percent, and ROEs above 12 percent.”

The rating agency also sees an “upside potential for the ratings,” if the rising premiums eventually establish “a track record of strong and diversified earnings.” However, there’s also a downside risk if the Group’s growth results in diluting “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.