LONDON--(BUSINESS WIRE)--A.M. Best has downgraded the Financial Strength Rating to C+ (Marginal) from C++ (Marginal) and the Long-Term Issuer Credit Rating to “b-” from “b” of JSC Insurance Company Centras Insurance (Centras) (Kazakhstan). The outlook of these Credit Ratings (ratings) is stable.
The rating downgrades reflect a material deterioration in Centras’ risk-adjusted capitalisation at year-end 2016, owing to the company’s rapid growth in gross and net written premiums (NWP) relative to its stable capital base. The company’s regulatory solvency margin declined to 1.26 as of April 1, 2017 (compared with a regulatory minimum solvency requirement of 1.00), down from 2.47 as of Jan. 1, 2016. A.M. Best expects Centras’ risk-adjusted capitalisation to improve in 2017 and 2018, driven by positive retained earnings. However, risk-adjusted capitalisation is not expected to improve to a level supportive of the former ratings in this time period.
Centras has reported technical losses in each of the past six years. In 2016, the company’s underwriting performance benefited from a 61% increase in NWP; however, the company reported an underwriting loss of KZT 310 million (2015: KZT 855 million), due to a combination of a material increase in its net unearned premium reserves and the ongoing impact of elevated expense levels. Underwriting performance in 2017 is expected to benefit from a rise in net earned premiums due to the 2016 increase in NWP. The company’s overall net profit fell to KZT 38 million in 2016 (2015: KZT 1 billion), in the absence of the material foreign exchange gains that boosted performance in 2015.
The company grew its share of the Kazakh non-life market to 4.1% in 2016 from 2.8% in 2015. As of Jan. 1, 2017, the company ranked seventh out of 25 non-life insurers in Kazakhstan, up from thirteenth in 2015. The company’s gross written premium rose by 91% to KZT 11.2 billion in 2016, driven by a 76% increase in the compulsory motor-third party liability business following the withdrawal of several competitors from this line, as well as by the addition of a number of large fronted property and third-party liability contracts. Despite the significant premium growth achieved in 2016, the company’s limited diversification and relatively small size may restrict its ability to defend its market position in challenging conditions.
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