LONDON--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bb” (Fair) of Uzbekinvest Export-Import Insurance Company JSC (Uzbekinvest) (Uzbekistan).
The Credit Ratings (ratings) reflect Uzbekinvest’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
The revision of the outlooks to negative from stable reflects pressure on Uzbekinvest’s balance sheet strength, due to the expected deterioration of the company’s risk-adjusted capitalisation at year-end 2022 (audited financial statements are yet to be finalised). This is due to the company’s significant business growth, combined with its lack of sophisticated accumulation management. The company is taking steps to re-build the buffers within its risk-adjusted capitalisation and to improve its exposure management. However, should the company fail to meet the capital requirements of its growing book of business, a rating downgrade is likely.
Uzbekinvest’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects the company’s BCAR scores to remain above the minimum required for the strongest assessment, albeit with a lower buffer to absorb potential shock losses. In addition, the company has a conservative investment allocation strategy, with approximately half of its investments held in bonds and other fixed income securities outside of Uzbekistan, which are predominantly of excellent credit quality. Offsetting factors include the company’s relatively unsophisticated capital management capabilities.
The marginal operating performance assessment considers Uzbekinvest’s high combined ratio, with a five-year (2017-2021) weighted average of 117.9%, as calculated by AM Best. Whilst the non-life loss ratio is low, overall underwriting results are negatively affected by Uzbekinvest’s high expense base. At year-end 2022, the underwriting results are expected to improve due to the company achieving greater economies of scale, combined with better results produced by its foreign book of business as compared with its domestic portfolio. However, the sustainability of these improvements is yet to be demonstrated.
Uzbekinvest’s limited business profile assessment reflects its leading market position in the small, albeit growing, Uzbek insurance market. Over the last two years, the company significantly grew its inward reinsurance portfolio, which is primarily written in foreign markets. In AM Best’s opinion, the company faces execution risk with regards to its expansion strategy, given its nascent profile and lack of expertise in the international reinsurance market.
Uzbekinvest is majority owned by the Ministry of Investments and Foreign Trade of the Republic of Uzbekistan. The company’s leading domestic market position and the relative independence of operations from the state mean that no lift or drag is applied to its ratings.
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