LONDON--(BUSINESS WIRE)--A.M. Best has assigned a financial strength rating of C++ (Marginal) and an issuer credit rating of “b” to JSC Insurance Company Centras Insurance (Centras) (Kazakhstan). The outlook assigned to both ratings is stable.
The ratings reflect Centras’ volatile risk-adjusted capitalisation, weak operating performance and marginal business profile in the Kazakh insurance market.
Centras’ risk-adjusted capitalisation has been subject to significant volatility in recent years due to a combination of rapid premium growth and high operating losses. Following the breach of minimum regulatory capital requirements in 2013, Centras received a KZT 319 million capital injection during the first half of 2014, which along with the contraction in net written premium (NWP) for the full year, is expected to improve its risk-adjusted capitalisation. Given the challenging operating conditions of the domestic insurance market and the company’s strategy to rapidly shift its business mix toward voluntary lines of business, A.M. Best expects that Centras’ capital adequacy, as measured by Best’s Capital Adequacy Ratio (BCAR) model, is likely to be reliant on further shareholders’ contributions to support its expansion.
Centras’ operating performance has weakened in recent years, driven largely by its high operating expenses relative to NWP and deteriorating loss experience, resulting from the increased claims activity of its motor third-party liability (MTPL) and property accounts. The company’s combined ratio has remained at above 100% for a third consecutive year and has translated into operating losses since 2013. In the near-term, Centras’ earnings are unlikely to revert to their historical profitable levels, reflecting the intense competition and weak pricing conditions of the Kazakh market.
Centras maintains a marginal business profile. The weakening operating conditions in the Kazakh insurance market have resulted in the company increasingly diversifying its portfolio away from its core compulsory MTPL business, which accounted for 34% of gross written premium in 2014 (2013: 41%). With the negative pressures underpinning the domestic market, A.M. Best believes that Centras faces challenges with expanding its portfolio profitability in view of its double-digit (net) annual growth plans for the near-term.
Centras’ marginal business profile means that the company has had to change its strategic direction in response to regulatory actions taken in recent years. A.M. Best believes that Centras’ relatively small size and limited diversification, coupled with the intense competitive environment, limit its ability to stabilise its earnings should further regulatory changes take place.
Positive rating actions will be subject to Centras demonstrating the successful execution of its business plans, through the generation of stable operating results whilst strengthening its risk-adjusted capitalisation. A continued decline in underwriting performance as a result of its expansion strategy could result in negative rating actions.
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.
Key insurance criteria reports utilised:
• Analyzing Insurance Holding Company Liquidity
• Catastrophe Analysis in A.M. Best Ratings
• Evaluating Country Risk
• Risk Management and the Rating Process for Insurance Companies
• Understanding Universal BCAR
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