LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of Victoria Insurance Company JSC (Victoria) (Kazakhstan). The outlook of these Credit Ratings (ratings) remains negative.
The maintenance of the negative outlooks reflects the uncertainty associated with Victoria’s business strategy, which has been subject to frequent modification, as well the company’s underdeveloped risk management framework. The ratings also consider the company’s strong risk-adjusted capitalisation, positive operating results and exposure to the heightened country risk of Kazakhstan.
Victoria’s business profile remains marginal, as the company is ranked 17th out of 25 non-life insurers in Kazakhstan based on 2016 gross written premium, which translates into a 1.5% share of the market. In 2016, the company’s gross written premium totaled KZT 4.0 billion (approximately USD 12 million), falling slightly from KZT 4.1 billion in 2015. The insurance portfolio is dominated by civil liability business, mainly surety risks, which represented approximately 40% of net premium income in 2016. Victoria’s profile shifted materially in 2015, when the company refocused its underwriting efforts to provide advance payment protection for construction projects associated with Expo-2017. After growing rapidly in 2015, premium income emanating from Victoria’s surety line stabilised in 2016, due to some Expo projects nearing their completion.
In A.M. Best’s opinion, uncertainty exists with regard to Victoria’s ability to maintain its market position and successfully execute its strategic plans in the aftermath of Expo-2017, an international exposition currently hosted in Kazakhstan, due to the company’s dependency on large surety and property Expo-related accounts. In 2017, Victoria will aim to get involved in a number of new infrastructure projects in Astana to replace Expo-related business, and also plans to redevelop its consumer finance protection business via the local bank, JSC Nurbank. The company 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.
Victoria continues to maintain excellent risk-adjusted capitalisation underpinned by its large and under-utilised capital base. The company has a track record of generating capital internally, which has resulted in accumulation of a large buffer that enables Victoria to withstand potential earnings volatility. In 2016, the company reported capital and surplus of KZT 78.3 billion (approximately USD 237 million), compared with KZT 82.0 billion in 2015 (approximately USD 243 million). A dividend payment of KZT 7 billion (approximately USD 21 million) was made in 2016, owing to the exceptional profit achieved in the prior year. In 2016, Victoria reported after-tax earnings of KZT 3.2 billion (approximately USD 10 million), compared with KZT 30.5 billion (approximately USD 90 million) in the previous year, when the company’s results benefited from significant foreign exchange gains.
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 going forward.
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