A.M. Best Special Report: Kazakhstan’s Insurance Market Recovers, But Testing Times Remain

LONDON--(BUSINESS WIRE)--Kazakhstan’s insurance market was negatively impacted by the global financial crisis, although in 2010 and 2011, it enjoyed a strong recovery which is continuing into 2012, according to a new report by A.M. Best Co.

“Insurance penetration is low, in part because under the former Soviet economic and social system people typically relied more on government aid. However, insurers anticipate that perceptions of the need for insurance and purchasing habits will change with the emergence of a new generation.”

In 2011, total gross premiums written (GPW) grew 25.4% to 175.5 billion Kazakhstani tenge (KZT) (USD 1.2 billion). A significant proportion of these risks are ceded to international and regional reinsurers, with Kazakhstan insurers acting in a fronting capacity. Furthermore, some insurers effectively operate as captives for their parent company but retain little risk.

The insurance market has continued to grow in 2012, according to data from the National Bank’s Committee for the Control and Supervision of the Financial Market and Financial Organizations. Total insurance premiums in 2012 leading up to 1 July reached KZT 99.5 billion, representing a 12.5% increase on the first six months of 2011.

The life sector enjoyed the fastest growth in the first half of 2012, with voluntary personal insurance (life, annuity, accident and sickness products) reaching KZT 43.1 billion, equating to 43.3% of total premiums. In the first half of 2012, the life segment had grown by 75% compared to a year earlier. This, in part, reflects regulatory changes whereby from January 2012, only life insurers are permitted to underwrite employers’ liability (EL) coverage. This has resulted in premiums moving from non-life insurers to life affiliates or life companies.

However, Carlos Wong-Fupuy, senior director, analytics, said, “There are a variety of challenges facing insurers, including changes to the motor claims process, exposures to natural catastrophe events, as well as political uncertainties. Insurers hold below-investment-grade debt securities issued in the local Kazakh market, exposing them to the country’s high-risk political and financial systems. Additionally, insurers are ceding risks, to some extent, to reinsurers with vulnerable or no ratings.”

Insurers have also faced significant losses from large risks, particularly in the past four years. Major industry losses have included property damage and business interruption claims from a large fire at the Arcelor Mittal Temirtau plant in 2008, for which AIG Kazakhstan (since renamed Chartis Kazakhstan) paid USD 42 million. The loss of the KazSat-1 national satellite that same year was another large insurance payment, with an estimated USD 40 million of claims paid, although there was significant use of reinsurance.

The insurance sector is small, nevertheless, and drivers for insurance growth are diverse and include economic development, which is resulting in greater demand for voluntary insurance. Compulsory lines of business also support the insurance market.

Yvette Essen, report author and director of industry research, Europe and emerging markets, added, “Insurance penetration is low, in part because under the former Soviet economic and social system people typically relied more on government aid. However, insurers anticipate that perceptions of the need for insurance and purchasing habits will change with the emergence of a new generation.”

To access a full complimentary copy of this report, please visit www.ambest.com/press/092702kazakhstanspecialreport.pdf.

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