Standard & Poor's Ratings Services said today that it revised to positive from stable the outlook on Dubai-based Salama/Islamic Arab Insurance Co. (P.S.C.) (Salama/IAIC) and its wholly owned, strategically core reinsurance subsidiary, Tunis-based BEST RE. At the same time, all the long-term counterparty credit and insurer financial strength ratings were affirmed at 'BBB+'.
The BEST RE reinsurance subgroup within Salama/IAIC is currently being restructured. As a result, the newly affirmed 'BBB+/Positive' ratings on BEST RE, Tunis have been withdrawn at the company's request, ahead of its conversion to branch status. The group has created two new, strategically core reinsurance subgroup main operating companies, BEST RE (L) Ltd., and BEST RE Family (L) Ltd., both of which are based in Labuan, Malaysia. Standard & Poor's has assigned 'BBB+/Positive' counterparty credit and financial strength ratings to these companies (see "Standard & Poor's Comments On The Restructuring Of The BEST RE Reinsurance Group," published today).
The rating actions reflect the strong commercial profile and the very good financial position of the highly diversified Salama/IAIC insurance and reinsurance group. The group has strong overall and risk-based capitalization, a strong competitive position across Middle Eastern and Far Eastern insurance and reinsurance markets, strong liquidity, and good investment strategies, financial flexibility, and operating performance. We expect the latter to strengthen further over the next two years.
The group trades under the Salama brand for primary insurance and under the BEST RE name for inward reinsurance activities. Salama/IAIC and its subsidiaries enjoy a strong business position based on the well-diversified provision of explicitly Sharia-compliant insurance (takaful) and, through the wholly owned BEST RE sub-group, inward life and non-life reinsurance (retakaful).
"The positive outlook reflects our expectation that the core members of the Salama/IAIC group will match ongoing top-line revenue growth of some 20% a year at the consolidated level with improving bottom-line net income," said Standard & Poor's credit analyst David Anthony. "We expect net income to approach AED60 million in 2010 and about AED100 million in 2011. As strategically core subsidiaries, the ratings and outlook on BEST RE (L) and BEST RE Family (L) will move in lockstep with the ratings and outlook on Salama/IAIC itself."
The ratings are likely to rise by one notch over the two-year outlook period if, as expected, the group maintains its balance-sheet strength, develops its already-strong competitive position, and improves earnings to sustainably strong levels. Negative rating pressures could develop if operating performance proves only adequate over time, or if the current restructuring of the BEST RE subgroup is found to lead to operational or risk management shortfalls.