LONDON--(BUSINESS WIRE)--A.M. Best has downgraded the Financial Strength Rating (FSR) to C++ (Marginal) from B- (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) to b+ from bb- of Nomad Insurance Company JSC (Nomad Insurance), the wholly owned subsidiary of Nomad Insurance Group Limited, a private non-operating company (both entities are domiciled in Kazakhstan). The outlook of the FSR has been revised to stable from negative, whilst the outlook of the Long-Term ICR remains negative.
The Credit Rating (rating) downgrades follow a downward trend in Nomad Insurance’s risk-adjusted capitalisation, owing to a rise in its net underwriting leverage and the payment of dividends over the past two years.
The negative Long-Term ICR outlook considers the risk that Nomad Insurance’s risk-adjusted capitalisation could decline further, taking into account the potential for a further increase in its net underwriting leverage, as well as future dividend payments.
The ratings reflect Nomad Insurance’s balance sheet strength, which A.M. Best categorises as adequate, as well as its adequate operating performance, limited business profile and weak enterprise risk management.
Nomad Insurance’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed as adequate as of year-end 2017. Risk-adjusted capitalisation has declined over the past two years due to a rise in net underwriting risk in 2016, as the company discontinued its motor third-party liability quota share reinsurance protection, and in 2017, due to a 34% growth in net written premium, as it expanded into new lines of business. At the same time, significant dividend payments were made in 2016 and 2017. Nomad Insurance has a basic capital management strategy that is reliant on local solvency requirements in Kazakhstan. Whilst the company remains compliant with local requirements, its solvency ratio has been subject to volatility, as shown by a coverage ratio of 1.17 as of January 2018, compared with 2.20 as of December 2017. In A.M. Best’s opinion, Nomad Insurance’s ability to withstand unexpected large losses or sudden changes in its operational environment has decreased.
Nomad Insurance has reported underwriting profits in four out of the past five years. However, the company’s technical results are somewhat pressured by high acquisition and management costs. The expense strain is not expected to ease in the near term due to Nomad Insurance’s high-cost distribution framework and a lack of scale. Investment performance is subject to volatility but has been excellent in recent years, reflective of the high interest rate environment in Kazakhstan and Nomad Insurance’s material foreign exchange gains arising from its holdings of U.S. dollars.
Nomad Insurance has an established business profile in Kazakhstan, and is a leader in local motor third-party liability insurance. Negatively affecting A.M. Best’s assessment of the company’s business profile is its relatively small size (by international standards) and concentration in Kazakhstan, which limit its ability to defend its competitive position.
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