LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of C++ (Marginal) and the Long-Term Issuer Credit Rating of “b+” of JSC IC Kazkommerts-Policy (Kazkommerts-Policy) (Kazakhstan). The outlook of these Credit Ratings (ratings) is stable. Kazkommerts-Policy is a majority owned subsidiary of JSC Kazkommertsbank (Kazkommertsbank), which in turn is owned by JSC Halyk Bank (Halyk Bank), a leading retail bank in Kazakhstan.
The ratings reflect Kazkommerts-Policy’s balance sheet strength, which A.M. Best categorises as strong, as well as its marginal operating performance, limited business profile and weak enterprise risk management.
Kazkommerts-Policy’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed as strongest. However, balance sheet strength is affected negatively by the company’s high level of exposure to earthquake risk in Kazakhstan, combined with its weak reinsurance protection against catastrophe losses. Additionally, the company’s investments are exposed to high financial system risk in Kazakhstan, with approximately 40% of its fixed income portfolio being non-investment grade.
Operating performance has been profitable, albeit volatile, with investment income usually making up for the shortfall in underwriting performance. In 2016, the company reported an underwriting profit for the first time in five years (2012-2016), driven by reserve releases on its workers’ compensation portfolio. In the first nine months of 2017, based on the national accounting standards, the insurer recorded a combined ratio of 99%, with premium growth outpacing the cost of claims and expenses. In A.M. Best’s view, there is material uncertainty regarding the sustainability of improved underwriting performance over the longer term, given tough market conditions and the company’s still high, although somewhat improved, expense ratio (2016: 69.5%; 2015: 78.1%).
Kazkommerts-Policy has continued to grow rapidly in 2017, with net written premiums (NWP) forecast to be three times higher than in 2014. Growth over this period was in part fuelled by the company’s merger with another Kazakh non-life insurer in 2015. The company became the fourth-largest insurer in Kazakhstan’s non-life market in 2016, and has maintained this position (as measured by gross written premiums) in the first nine months of 2017. However, there are concerns regarding the company’s ability to defend its leading market position due to the intense competition in Kazakhstan’s non-life market. The underwriting portfolio has limited diversification by product and geography, with 45% of NWP sourced from compulsory business lines in 2016, which increases the company’s exposure to regulatory risk.
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