LONDON--(BUSINESS WIRE)--A.M. Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “b+” from “b” and affirmed the Financial Strength Rating of C++ (Marginal) of Insurance Company London-Almaty JSC (London Almaty) (Kazakhstan). The outlook of these Credit Ratings (ratings) is stable.
The upgraded Long-Term ICR reflects London Almay’s improving business profile in Kazakhstan. Growth of the company’s operations is expected to bring economies of scale and benefit underwriting performance over the medium term by offsetting the company’s high expense base and reducing volatility. The ratings reflect London Almaty’s volatile operating performance, strong risk-adjusted capitalisation, under-developed enterprise risk management (ERM) and the heightened level of country risk exposure in Kazakhstan.
London Almaty is a mid-tier insurer in Kazakhstan, ranked 13th out of 26 non-life companies, with gross written premiums of KZT 6.7 billion (approximately USD 19.6 million) for the year ended 2016. The company’s business profile has improved during 2016, driven by new business generation from commercial and retail lines. This follows a change of company ownership and the appointment of a new management team during 2015, which has resulted in a revised business strategy. Despite the company’s growing business profile, its operations remain relatively small, susceptible to unexpected regulatory changes and concentrated by line of business and geography.
The company’s operating results, whilst volatile, have been positive in four out of the past five years (2012-2016). London Almaty’s annual return on equity has varied between -2.4% and 34.0% during the same five-year period. Volatile operating results have been driven by fluctuating investment performance, reflecting changes in the fair value of the company’s invested assets and from foreign exchange movements following the devaluation of the Kazakhstan Tenge. The company’s underwriting operations have been loss making in each of the past three years (2014-2016), negatively impacting operating results. Weak technical performance has been driven principally by the company’s high expense base and lack of scale.
London Almaty’s risk-adjusted capitalisation remains at a strong level, supported by retained earnings and a panel of reinsurers that typically have solid credit quality. Going forward, the company’s planned underwriting expansion is expected to drive a significant increase in capital consumption. However, the current strong level of risk-adjusted capitalisation, along with the retention of future earnings, is expected to support the projected underwriting growth.
The company’s ERM is considered under-developed when compared with international standards. London Almaty’s approach to risk management is focused principally on adhering to local regulatory guidelines and requirements. The company’s basic approach to risk management, as well as its exposure to the heightened economic, political and financial system risks associated with operating in Kazakhstan, remain negative rating factors.
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