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 Insurance Company London-Almaty JSC (London Almaty) (Kazakhstan). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect London Almaty’s balance sheet strength, which A.M. Best categorises as strong, as well as its marginal operating performance, very limited business profile and weak enterprise risk management (ERM).
The company’s balance sheet assessment is underpinned by its risk-adjusted capitalisation being at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Although A.M. Best expects London Almaty’s risk-adjusted capitalisation to decline over the next three years as a result of underwriting growth and dividend payments, it is likely to remain at the strongest level. Offsetting factors for balance sheet strength include the company’s small capital base, which increases its sensitivity to shock events, and its significant dependence on reinsurance for underwriting large limit risks. Additionally, the company’s invested assets are exposed to the high financial system risk in Kazakhstan.
London Almaty’s operating performance has been largely profitable, albeit volatile and dependant on investment income. The company’s annual return on equity has varied between minus 2.4% and 34.0% over the past five years (2013-2017). 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 Kazakh Tenge. The company’s underwriting operations have been loss making in each of the past three years (2015-2017), driven principally by the company’s high expense base and lack of scale.
London Almaty is a small insurer and ranked 12th in the Kazakh non-life market based on 2017 gross written premiums. Despite ambitious plans to grow its underwriting portfolio, success has been mixed. Whilst gross written premiums grew by over 80% in 2016, surpassing KZT 6 billion, planned growth in 2017 did not materialise and the company’s premium base shrank by nearly 10%. In A.M. Best’s view, the high cost of attracting new business in Kazakhstan presents a material barrier to profitable growth over the near term. The company’s approach to risk management is focused principally on adhering to local regulatory guidelines and requirements. An undeveloped internal risk management framework and the company’s exposure to the heightened economic, political and financial system risks associated with operating in Kazakhstan remain offsetting factors in A.M. Best’s assessment of ERM.
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