Baku, Azerbaijan, Nov. 1
By Elena Kosolapova – Trend:
The international Rating Agency Fitch Ratings has affirmed JSC Kazakhmys Insurance Company's (Kazakhmys Ins) Insurer Financial Strength (IFS) rating at 'B+' and its National IFS rating at 'BBB(kaz)', the rating agency reported. The Outlooks are Stable.
“The ratings reflect Kazakhmys Ins's strong capital position for the rating level and robust profitability. Offsetting factors include the low average credit quality of its investment portfolio, challenges related to its growth strategy and high dependence on outwards reinsurance,” the rating agency reported.
Like its Kazakh peers, Kazakhmys Ins is exposed to the immaturity of the local capital market. The investment strategy of the company is focused on bank deposits, which accounted for 79 percent of the total investment portfolio at end-2015. At end-2015 58 percent of the investment portfolio was placed with local banks, mainly rated in the 'B' category. Fitch considers the improvement of the average credit quality of the investment portfolio important for further successful development of the company.
Fitch views the growth of Kazakhmys Ins's insurance portfolio as undiversified, although improving diversification and reducing reinsurance utilisation were key aims of the recent capital injection. Kazakhmys Ins's net premium compound growth rate was 48 percent in 2015 and 99 percent in 9M16. The growth was mainly driven by compulsory motor third-party liability insurance, which increased to 68 percent of the portfolio on a net premium basis in 9M16 from 52 percent in 2015 (2014: 25 percent).
Kazakhmys Ins's reliance on outwards reinsurance is extremely high, with a reinsurance utilisation ratio of 90 percent in 9M16 compared with 84 percent in 2015. Kazakhmys Ins uses reinsurance primarily to protect its large commercial accounts. The level of reinsurance commission that Kazakhmys Ins receives on outwards reinsurance is volatile.
The ratings could be upgraded if Kazakhmys Ins improves the average credit quality of its investment portfolio. The ratings could also be upgraded if the company successfully executes its growth strategy, with a sustainable improvement in underwriting profitability and increased diversification of the portfolio.
The ratings could be downgraded if Kazakhmys Ins depletes capital either due to underwriting or investment losses or demonstrates long-term inability to return to profitable underwriting.