LONDON--(BUSINESS WIRE)--AM Best has revised the outlook to stable from negative for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term ICR of “bbb+” of Eurasia Insurance Company JSC (Eurasia) (Kazakhstan). The outlook of the FSR remains stable.
The Credit Ratings (ratings) reflect Eurasia’s balance sheet strength, which AM Best categorises as strong, as well as the company’s strong operating performance, neutral business profile and appropriate enterprise risk management.
The revision of the Long-Term ICR outlook to stable reflects the continued trend of improvements in Eurasia’s technical performance since 2015, when it reported a material technical loss, as well as the resilience of the company’s risk-adjusted capitalisation over a period of changing underwriting and investment market conditions in Kazakhstan.
Despite some exposure to catastrophe losses in 2017 and 2018 within the international portfolio, Eurasia was able to achieve technical profits in each year, benefiting from portfolio diversification by product type and geography. In 2018, the company began expanding into the local motor-third party liability (MTPL) segment, and since has been able to generate combined ratios on its MTPL book of below 90%, which compares favourably with the market.
Eurasia’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which is consistently maintained above the minimum requirements for the strongest assessment, providing the company with sufficient capital buffers to absorb the impact of adverse fluctuations in its operating environment. Eurasia has low dependence on reinsurance and a conservative reserving approach that has led to reserve redundancies in recent years. Whilst the company has taken steps to improve the quality of its investment portfolio, its asset base remains heavily exposed to the high financial system risk in Kazakhstan, which is an offsetting rating factor.
Eurasia derives limited financial flexibility and liquidity from its holding company, Eurasian Financial Company JSC (EFC), which has a higher risk profile due to its ownership of Eurasian Bank JSC. Nonetheless, no rating drag has been applied to Eurasia’s ratings from EFC, in view of regulatory restrictions in Kazakhstan that prohibit extraction of capital from a subsidiary to its detriment.
Eurasia’s operating performance is strong, with the company reporting a five-year (2014-2018) weighted average combined ratio of 94.6% and return on equity of 21.2%. Whilst technical results have been subject to volatility, the company has reported positive operating earnings in each of the past 10 years, supported by solid investment returns. Underwriting results have improved and been less volatile in recent years, and Eurasia’s operating performance over the cycle is in line with AM Best’s expectation for the strong assessment.
Eurasia has a dominant role in the local (re)insurance market and benefits from geographical diversification through international inward reinsurance. It is the largest (re)insurance company in Kazakhstan, occupying an 18% market share based on 2018 non-life market premiums. Its international portfolio provides diversification and accounts for 30% of premium written. Reinsurance business emanates mainly from India, China and the United States, where the company maintains long-standing relationships with its cedants. However, Eurasia faces strong competition in its international markets from companies with more established profiles.
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