Baku, Azerbaijan, July 9
By Elena Kosolapova - Trend:
Standard & Poor's Ratings Services has kept on CreditWatch with negative implications its 'B+' long-term counterparty credit and insurer financial strength ratings on Insurance Co. Kazkommerts-Policy JSC.
"We also kept on CreditWatch negative our 'kzBBB-' Kazakhstan national scale rating on Kazkommerts-Policy," S&P said July 9.
The ratings on Kazkommerts-Policy continue to be constrained by the company's small premium base in absolute terms, geographic focus on Kazakhstan, and negative underwriting performance. While we anticipate that Kazkommerts-Policy's competitive position could improve once the company fully completes its merger with BTA Insurance, the degree of strengthening will depend on the reorganized company's ability to maintain positive operating performance.
In our opinion, Kazkommerts-Policy's financial risk profile is constrained by the overall credit quality of its investments, which is--on average--in our 'BB' category. However, the company's capital and earnings are moderately strong, thanks to the current capital adequacy and expected premium growth. We understand that once BTA Insurance is fully merged with Kazkommerts-Policy, shareholders may consider taking part of the capital out of the company, but we expect that its capital adequacy will remain at least moderately strong. We also believe that dividends will not constrain the company's liquidity position and thus not constrain the rating.
The CreditWatch placement reflected the similar rating action on Kazkommerts-Policy's parent, Kazkommertsbank JSC (KKB).
S&P continues to consider Kazkommerts-Policy to be a strategically important subsidiary of KKB. We do not, however, add any support to the rating on Kazkommerts-Policy because the insurer's 'b+' stand-alone credit profile is higher than KKB's 'b' group credit profile, the statement said.
S&P considers the insurance company to be insulated from KKB, as per our rating approach. We therefore consider Kazkommerts-Policy able to be rated higher than its parent. This is because the regulatory framework provides some protection for the insurer in the event of adverse intervention from KKB. The regulatory framework also includes constant oversight from the National Bank of the Republic of Kazakhstan.
S&P considers that the long-term counterparty credit and insurer financial strength ratings should be limited to one notch above the long-term ratings on the parent, the statement said.
The resolution of the CreditWatch placement depends on a similar resolution of the CreditWatch placement of the ratings on KKB. This will depend on our assessment of the the terms and details of the transfer of assets between KKB and BTA and the subsequent deconsolidation of BTA, taking into account any other developments that might change our assessment of the capital of the consolidated bank. We expect to have more clarity on the ratings impact of these issues over the next three months.
S&P could lower our ratings on Kazkommerts-Policy if we downgrade KKB. Our ratings on Kazkommerts-Policy will likely be at most one notch higher than that on KKB, the statement said.
S&P would also consider a negative rating action on Kazkommerts-Policy if we were to perceive KKB's actions as having a negative effect on the insurance company's operating results or infringing on the policyholders' rights. Furthermore, a negative rating action could follow if we were to observe that any expected consolidation of BTA Insurance with Kazkommerts-Policy could weaken Kazkommerts-Policy's status as an insulated insurance subsidiary.
S&P could remove the ratings from CreditWatch negative and affirm them following a similar rating action on KKB, assuming we continue to believe that Kazkommerts-Policy is insulated from its parent.
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