A.M. Best Affirms Ratings of Victoria Insurance Company JSC

LONDON--()--A.M. Best has affirmed the financial strength rating of B+ (Good) and issuer credit rating of “bbb-” of Victoria Insurance Company JSC (Victoria) (Kazakhstan). The outlook for both ratings remains stable.

The ratings reflect Victoria’s excellent risk-adjusted capitalisation and solid operating performance. Offsetting factors relate to Victoria’s volatile business profile and the high execution risk associated with its prospective business strategy.

Victoria’s risk-adjusted capitalisation remains at an excellent level, supported by its large capital base. According to unaudited preliminary results from the local regulator in 2013, Victoria’s capital and surplus amounted to KZT 47.6 billion (approximately USD 312 million).

Victoria has a track record of producing solid operating results. However, in 2013 the company's underwriting performance was distorted by a large fraudulent claim under its liability account. As a result, Victoria’s combined ratio increased to 129% in 2013, compared to 49% in 2012. Although an improvement in Victoria’s underwriting performance is expected going forward, uncertainty exists in relation to the company’s controls in place to support its underwriting.

Victoria’s business profile remains volatile due to its dependence on large single accounts and susceptibility to changes in the regulatory environment in Kazakhstan. In 2013, Victoria’s gross written premium (GWP) declined by 11%, due to the non-renewal of a large contract that the company had been fronting for a small regional reinsurer. This follows the 70% decrease in premium volume in 2012, when Victoria was unable to continue fronting several large risks as a result of regulatory changes that penalise insurance companies for using lower rated foreign and domestic reinsurers.

Victoria’s business strategy has been subject to various modifications. Currently Victoria's expansion plan is largely dependent on its ability to develop its banking channels to support growth in the consumer protection portfolio. This account represented approximately 15% of GWP in 2013, but is expected to grow up to 50% of the company’s portfolio in 2016. At present, Victoria is solely dependent on its former banking affiliate, JSC Nurbank, to support its expansion. In view of this, A.M. Best is taking into consideration that Victoria faces material execution risk in the implementation of its business strategy. This risk is further enhanced by the instability of the domestic banking sector.

Positive rating actions are unlikely in the near term. A sustained deterioration in Victoria’s underwriting performance, either due to reserve deficiencies or as a result of the unsuccessful implementation of its business strategy would likely result in downwards rating pressure. Additionally, a decline in risk-adjusted capitalisation, particularly due to the withdrawal of a significant amount of capital out of the company, would likely result in negative rating actions being taken. A decline in the country risk fundamentals of Kazakhstan could also drive negative pressure on the 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.

Contacts

A.M. Best Co.
Valeria Ermakova, +(44) 20-7397-0269
Associate Financial Analyst
valeria.ermakova@ambest.com
or
Deniese Imoukhuede, +(44) 20-7397-0277
Associate Director, Analytics
deniese.imoukhuede@ambest.com
or
Rachelle Morrow, +(1) 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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Contacts

A.M. Best Co.
Valeria Ermakova, +(44) 20-7397-0269
Associate Financial Analyst
valeria.ermakova@ambest.com
or
Deniese Imoukhuede, +(44) 20-7397-0277
Associate Director, Analytics
deniese.imoukhuede@ambest.com
or
Rachelle Morrow, +(1) 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com