LONDON--(BUSINESS WIRE)--A.M. Best has revised the outlooks to negative from stable and affirmed the financial strength rating of B+ (Good) and the issuer credit rating of "bbb-" of Victoria Insurance Company JSC (Victoria) (Kazakhstan).
The revision in the outlooks to negative reflects Victoria’s inconsistent business strategy and under-developed risk management framework, which have worsened A.M. Best’s opinion regarding the company’s risk profile. The ratings also consider the company’s strong risk-adjusted capitalisation, positive operating results and exposure to the heightened country risk of Kazakhstan.
Originally assessed as a property-focused insurer, Victoria's business strategy has been subject to ongoing modification as the company seeks opportunities within the intensely competitive domestic insurance market, whilst adapting to the evolving legislative environment. In 2015, Victoria refocused its underwriting efforts to provide advance payment protection for infrastructure projects associated with EXPO 2017, an international exposition that will be hosted by Kazakhstan in the forthcoming year. As a result, the company’s insurance portfolio is heavily concentrated on civil liability insurance, which represented almost half of its net premium income in 2015. Civil liability insurance predominantly comprises the advance payment protection business.
Victoria is also expected to redevelop its portfolio of consumer finance protection business. In 2013, the rapid development planned for this account stalled when legislation was changed to limit the availability of credit to the population. The company’s decision to recommence its expansion of this business segment reflects the reversal of this law in 2015. In A.M. Best's opinion, Victoria faces material execution risk in diversifying its insurance portfolio, and gaining sufficient scale to support a business position commensurate with insurers that maintain a secure credit profile. In 2015, Victoria wrote gross written premium of KZT 4.2 billion (approximately USD 12 million).
Victoria continues to maintain excellent risk-adjusted capitalisation underpinned by its large and under-utilised capital base. In 2015, the company reported capital and surplus of KZT 82.0 billion (approximately USD 240 million) as a result of foreign exchange gains of KZT 32.9 billion (approximately USD 95 million) arising from its significant holdings of U.S. dollar denominated assets, which benefitted from the devaluation of the Kazakh tenge during the year. Victoria reported strong pre-tax earnings of KZT 38.0 billion in 2015 (approximately USD 112 million), compared to KZT 4.7 billion (approximately USD 25 million) in the previous year.
Although Victoria's substantial capital base provides some buffer to absorb the volatility associated with its high (gross) risk appetite and exposure to risk accumulation arising from particular lines of business, uncertainty exists regarding the effectiveness of the company's under-developed risk management framework and underwriting controls to support positive operating results and strong risk-adjusted capitalisation as the company expands.
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