BAKU, Azerbaijan, Oct. 20
By Nargiz Sadikhova - Trend:
Fitch Ratings has affirmed JSC Kazakhmys Insurance Company (Kazakhstan)'s Insurer Financial Strength (IFS) Rating at 'BB-' and National IFS at 'BBB+(kaz)' with Negative Outlooks, Trend reports citing Fitch.
The affirmation of the rating reflects Kazakhmys Insurance Company's strong capital position, sound underwriting profitability and adequate investment quality, the Fitch said.
“The Negative Outlook continues to reflect Kazakhmys Ins' very high dependence on outward reinsurance coverage purchased abroad, which may expose the insurer's underwriting result and capital to higher foreign currency (FC)-driven volatility due to the economic implications of the coronavirus pandemic,” the report said.
Fitch noted that Kazakhmys Ins has made some progress towards reducing its dependence on the outward reinsurance.
“In 9M2020 the insurer reported a 18 percent decline in gross premiums written (GPW) but a 55 percent growth in net premiums written (NPW). The growth in net business volumes reflects the nascent restructuring of the insurer's portfolio towards less reinsurance-demanding risks and higher levels of net retention. The insurer expects to support this trend in 4Q2020,” the report said.
Kazakhmys Ins's reinsurance utilisation ratio, measured in terms of written premiums, remains high at 75 percent in 9M2020, albeit lower than the five-year average of 88 percent in 2015-2019 and 87 percent in 9M2019.
“The reinsurers' share in earned premiums remains unchanged, at 90 percent in 9M2020, in line with 91 percent in 2019 and the five-year average of 87 percent in 2014-2018, as the large contracts written and fronted to reinsurers in 4Q19 continue to be earned and prevail over small volumes of NPW,” the report said.
Fitch views Kazakhmys Ins' investment strategy as relatively prudent given the available choice of domestic investment instruments. Kazakhmys Ins' asset mix shifted to fixed-income securities of a better credit quality in 2019 compared with the asset allocation at end-2018 and end-2017. The improvement in the credit quality of the fixed-income portfolio was driven by the growing share of government bonds (Lon-Term IDR: BBB) and US Treasury bonds. The company's risky-assets-to-equity ratio was 41 percent at end-2019.
The ratings remain sensitive to a material change in Fitch's rating-case assumptions with respect to the coronavirus pandemic. Periodic updates to our assumptions are possible given the rapid pace of changes in government actions in response to the COVID-19 pandemic, and the pace with which new information is made available on the medical aspects of the outbreak.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
-A material adverse change in Fitch's rating assumptions with respect to the coronavirus impact would be rating negative.
- The ratings could be downgraded if Kazakhmys Ins's underwriting losses start to erode capital.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
-A material positive change in Fitch's rating assumptions with respect to the coronavirus impact would be rating positive.
-A positive rating action would need to be prefaced by Fitch's ability to reliably forecast the impact of the coronavirus pandemic on the financial profiles of both the Kazakh insurance sector and Kazakhmys Ins.
-The ratings could be upgraded if Kazakhmys Ins reduces its dependence on reinsurance, provided the company repositions its business mix while maintaining its asset risk.
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