Takaful International 'BBB' ratings affirmed and removed from watch negative

Standard & Poor's Ratings Services said today that it removed its ratings on Bahrain-based Takaful International Co. BSC from CreditWatch, where they had been placed with negative implications on Feb. 24, 2011. At the same time, we affirmed the 'BBB' long-term counterparty credit and insurer financial strength ratings on the company. The outlook is negative.

The rating actions follow those on the Kingdom of Bahrain (BBB/Negative/A-3); see "Rating On Bahrain Removed From Watch Negative And Affirmed At 'BBB'; Outlook Negative Due To Latent Political Tensions," published July 20, 2011. Under our ratings criteria, sovereign risk is a key factor influencing the financial strength of insurers. As a result, the vast majority of insurers are rated no higher than the relevant sovereign local currency rating. Consequently, the outlook on Takaful International is negative, reflecting our view of increasing sovereign-related risk.

Takaful International derives the majority of its premium from Bahrain and most of its invested assets are also held there. Therefore, we believe the quality of the company's investment portfolio is affected by movements in the sovereign rating. The heightened sovereign risk also adversely affects our view of industry and economic risks in Bahrain.

The negative outlook on Takaful International reflects that on Bahrain's sovereign credit ratings. If we were to lower the sovereign credit rating on Bahrain, we would also lower the ratings on Takaful International so that they align with those on the sovereign.