Fitch affirms insurer financial strength rating of Kazakhstan's Asia Life

Baku, Azerbaijan, Oct. 6

By Rashid Shirinov – Trend:

Fitch Ratings has affirmed Kazakhstan-based Life Insurance Company Asia Life JSC's (Asia Life) Insurer Financial Strength (IFS) Rating at 'B' and downgraded the National IFS Rating to 'BB(kaz)' from 'BB+(kaz)'.

The agency has simultaneously removed the ratings from Rating Watch Negative (RWN). The Outlooks on the ratings are Negative.

“The resolution of the RWN follows the full receipt of the proceeds of Asia Life's previously announced real estate sale. The downgrade of the National IFS Rating reflects the weakening of the solvency margin relative to its prior year indicators,” the report said.

Fitch placed Asia Life's ratings on RWN on 4 April 2018 following a weakening in the company's regulatory solvency margin, which occurred in the context of changes in its ownership structure.

The ratings reflect Asia Life's weak, albeit stable capital position, modestly positive financial performance and high but slightly improving investment risks. The Negative Outlooks reflect significant premium fluctuations in the insurer's book of business and uncertainty about the ability of the new management's business strategy to stabilize the company's business mix and strengthen the company's business profile.

“According to the new strategy, Asia Life plans to achieve 45 percent premium growth and 35 percent return on equity in 2019. Asia Life aims to restore its positions in the pension annuity segment after a one-year break, and also focus on travel insurance, which was introduced as a new compulsory coverage by the regulator in July 2018,” said the report.

The base case scenario suggests that the insurer will not receive any capital injections to support growth. Fitch believes that the fulfilment of this ambitious strategy might be somewhat challenging, as the local operating environment is competitive and Asia Life is one of the smaller players in the local life insurance sector.

To date, Asia Life's portfolio has focused on three key lines: obligatory workers' compensation insurance, protection-type insurance sold through the bancassurance channel, and voluntary but heavily regulated pension annuity insurance.

In the 4th quarter of 2017, Asia Life stopped writing new pension annuity business, which accounted for 58 percent of the company's net premiums written in 9 months of 2017. Instead, the insurer focused on protection-type products, which accounted for 32 percent of net premiums written in 8 months of 2018. However, it decided to put this line on hold in September 2018, due to losses brought about by inflated commissions to banks.

Fitch views Asia Life's investment and asset-liability matching risks as high but commensurate with the rating.

At end-2017 and end of 7 months of 2018 Asia Life improved the average credit quality of its investment portfolio, shifting to fixed-income instruments of better credit quality, said the report.

In 2017 the insurer reported a net profit of 47 million tenge, down from 410 million tenge in 2016, and a respective decline in ROE to 2 percent in 2017 from 16 percent in 2016. The company reported a worsened underwriting result both in life and non-life segments, compared with 2016 results.

The investment component remained stable, with investment yield totalling 12 percent in 2017, in line with 2016 results. In 7 months of 2018 Asia Life reported a modest net income of 3 million tenge, compared with a net loss of 66 million tenge in 7 months of 2017.

The official exchange rate on October 2 is 373.71 USD/KZT.

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