LONDON--(BUSINESS WIRE)--AM 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) remains positive. Concurrently, AM Best has withdrawn the ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect London-Almaty’s balance sheet strength, which AM Best categorises as strong, as well as its marginal operating performance, very limited business profile and weak enterprise risk management.
The positive outlooks reflect the trend of improving technical results over the past two years. AM Best believes that going forward, the sustainability of this trend will depend largely on London-Almaty’s ability to reduce its high acquisition costs.
The company’s balance sheet assessment is underpinned by its risk-adjusted capitalisation that is expected to remain at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), despite the company’s onerous dividend policy and planned portfolio expansion. The company maintains a conservative investment portfolio by asset type and reinsurance protection backed predominantly by companies with sound financial strength. Offsetting these positive factors is the company’s small capital base (equivalent to approximately USD 20.3 million in 2019), which increases its sensitivity to shock events, and its exposure to the high financial system risk in Kazakhstan.
London-Almaty has been profitable in recent years, albeit with volatile earnings that have been dependent on investment income. Over the past two years, its technical performance improved, demonstrated by combined ratios of 90.8% and 94.9% in 2018 and 2019, respectively compared with a five-year weighted average combined ratio of 100.3% over 2015-2019. Nonetheless, high expenses continue to place a drag on performance, due to the company’s small scale and the relatively high cost of sourcing business in Kazakhstan, as evident by its five-year weighted average expense ratio of 69.1%.
London-Almaty is a low to mid-tier insurer that operates solely in its developing domestic market, where there is a high level of competition and regulatory risk. In 2019, the company’s share of Kazakhstan’s non-life market was 2.6%, as measured by gross written premiums (before premium cancellations). On a net premium basis, the company’s market share was 1.8%, as it cedes some of its largest contracts to the international market. London-Almaty is reliant on its ability to retain large commercial contracts in order to maintain its current scale (on a gross basis) and profile. The company is subject to a high concentration of risk, with its portfolio heavily skewed toward compulsory motor third-party liability business, which represented approximately half of its book, based on net written premiums in 2019.
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