LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of Eurasia Insurance Company JSC (Eurasia) (Kazakhstan). The outlook for both ratings is stable.
The ratings of Eurasia reflect its excellent risk-adjusted capitalisation, solid—albeit volatile—operating performance and strong business profile as a leading direct and reinsurance provider in the Kazakhstan market.
Eurasia’s excellent risk-adjusted capitalisation remains supported by its large capital base. The company reported shareholders’ funds of KZT 53 billion (approximately USD 290 million), compared to net written premiums of KZT 24 billion (USD 130 million) at year-end 2013. Growth of Eurasia’s capital and surplus reflects its good earnings generation and shareholders’ strategy of reinvesting a large portion of profits to sustain the company’s financial strength.
Operating performance remained solid in 2013, with Eurasia producing a return on net earned premium of 26% in 2013, unchanged from the previous year.
An offsetting rating factor is the volatility of Eurasia’s underwriting performance, primarily due to its expansion outside of Kazakhstan. Growth of the international portfolio (representing 40% of gross written premiums in 2013) has been largely driven by diversification into Asia, with material expansion into Continental Europe and the United States. For the second consecutive year, Eurasia reported an underwriting loss due to its exposure to a high level of large single risk losses, primarily derived from the international account, in addition to a rise in its remuneration expenses. The combined ratio of 100.6% in 2013 benefited from a KZT 1.8 billion release from the stabilisation reserve, representing 7.3% of net earned premium. Non-Kazakhstan markets remain the driver for expansion going forward, as Eurasia continues to strengthen its profile as a global reinsurer.
Eurasia’s ultimate parent, Eurasian Finance Company JSC, remains significantly exposed to the local Kazakh banking sector through its subsidiary, Eurasian Bank, which is considered to have vulnerable credit quality. The impact of the credit profile of the banking affiliate on Eurasia’s financial strength is partially mitigated by regulatory restrictions on the removal of capital from an insurance subsidiary.
Positive rating actions would depend on the increased stability of Eurasia’s operating performance and demonstrable improvements in its competitive position outside of the Kazakhstan market. Key factors that could trigger negative rating actions include a downward trend in the company’s underwriting performance, deterioration in risk-adjusted capitalisation and a sustained increase in the credit risk exposure associated with Eurasia’s reinsurance placements. A decline in country risk fundamentals or the profile of its banking affiliate, Eurasian Bank, also could have a negative impact on Eurasia’s ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This rating announcement has been issued by A.M. Best Europe – Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.