LONDON--(BUSINESS WIRE)--A.M. Best has upgraded the Financial Strength Rating to B- (Fair) from C++ (Marginal) and the Long-Term Issuer Credit Rating to “bb-” from “b+” of Kommesk-Omir Insurance Company JSC (Kommesk) (Kazakhstan). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Kommesk’s balance sheet strength, which A.M. Best categorises as strong, as well as its marginal operating performance, very limited business profile and marginal enterprise risk management.
The rating actions reflect sustained improvement in Kommesk’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Model Ratio (BCAR), which has been maintained at the strongest level since 2015, when the company’s capital was boosted by a large foreign exchange gain. A.M. Best expects risk-adjusted capitalisation to remain at the strongest level, supported by the company’s policy to retain earnings. The company’s balance sheet strength is further supported by a comprehensive reinsurance programme, backed by a reinsurance panel of good credit quality. An offsetting rating factor is the low credit quality and limited diversification of the company’s investment portfolio, partially reflecting the limited availability of highly rated securities in Kazakhstan.
Kommesk is a small non-life insurer operating solely in the fragmented and highly competitive Kazakh market. The company has recorded a compound annual growth rate of 19% in net written premiums (NWP) over the 2013-2017 period, surpassing its domestic non-life market. Despite this, the company’s market share remains small, at 3%, based on NWP as at year-end 2017. Kommesk’s underwriting portfolio is concentrated, with more than half of its NWP sourced from compulsory motor third-party liability business.
The company’s operating earnings are somewhat volatile and largely driven by high investment yields. Underwriting performance has been weak, demonstrated by a five-year average combined ratio of 108.5% (2013-2017), owing to a high expense ratio, which is a common issue in the market and is a result of high-cost distribution networks and a lack of scale. However, overall earnings have been healthy, demonstrated by a five-year weighted average return on capital of 22% over the same period. A.M. Best expects underwriting performance to remain weak over the medium term, while investment returns are expected to decline, in line with declining interest rates in Kazakhstan.
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