Standard & Poor’s Ratings Services has assigned initial insurer financial strength and counterparty credit ratings of ‘BBB+’ to Saudi Re for Cooperative Reinsurance Co. (Saudi Re), which is based in the Kingdom of Saudi Arabia (KSA). The outlook on the ratings is stable.
Saudi Re is a start-up reinsurance company based in Riyadh. It was listed on the Riyadh Tadawul stock exchange in March 2008, and began actual underwriting in August 2008. Its strategy is to diversify its exposures by initially focusing on proportional treaty business in Saudi Arabia, as well as elsewhere in the Middle East and North Africa, while also selectively writing facultative risks across the region.
The newly assigned ratings reflect the company’s expert and influential management team, its broadly based and supportive shareholders, its strong paid up capitalization of Saudi riyals (SAR) 1 billion ($267 million), and the potential that the new company enjoys for rapid, sustainable growth, particularly in Saudi Arabia but also in neighboring Gulf Cooperation Council (GCC), Middle Eastern, and North African reinsurance markets. Standard & Poor’s also takes comfort from the close and effective scrutiny of the local insurance and reinsurance marketplaces by the financial institutions regulator, the Saudi Arabian Monetary Agency (SAMA).
“The main offsetting weakness in the Saudi Re analysis is inevitably the lack of track record, and it remains to be seen to what extent the new company will succeed in establishing a strong, sustainable competitive position while maintaining appropriate pricing and margins sufficient to generate strong profitability,” said Standard & Poor’s credit analyst David Anthony. “Saudi Re is nevertheless expected to enjoy immediate competitive strengths in its home market and attractive potential to develop its operations elsewhere within the GCC region and the wider Arab and Islamic world beyond.” The stable outlook reflects Standard & Poor’s view that Saudi Re enjoys attractive prospects for relatively rapid success but that it is still too soon to credit the new company with overall financial strength characteristics clearly consistent with a stronger rating range.
The ratings could be raised by one notch once there is clear evidence that Saudi Re is successfully establishing a strong, diversified, and sustainable business position in its core market of Saudi Arabia, while generating appropriate underwriting and operating profits overall. Less likely, the ratings could come under negative pressure if Standard & Poor’s finds that actual performance has slipped significantly relative to the start-up company’s stated objectives.
