Uzbek Kafolat Insurance Company’s capital position vulnerable to potential investment shocks
BAKU, Azerbaijan, May 6
By Ilkin Seyfaddini – Trend:
Fitch Ratings international rating agency affirmed Uzbekistan-based JSC Insurance Company Kafolat's Insurer Financial Strength (IFS) Rating at “BB-” with a stable outlook at the level of sovereign rating, Trend reports citing the agency.
“The affirmation is based on Fitch's current assessment of the impact of the coronavirus pandemic, including its economic impact, under a set of ratings assumptions. These assumptions were used by Fitch to develop pro-forma financial metrics for Kafolat that Fitch compared with both ratings guidelines defined in its criteria, and relative to previously established Rating Sensitivities for Kafolat,” the report said.
Fitch's pro-forma analysis indicates the high vulnerability of Kafolat's risk-adjusted capital position to potential investment shocks, as measured by Fitch's Prism factor-based capital model (FBM).
However, Fitch believes that the government will be committed to support Kafolat as long as the insurer remains state-owned. Under Fitch's pro-forma earnings stress tests, Kafolat demonstrated resilience to operational shocks and financial performance metrics are only marginally hit.
The affirmation takes into account state ownership, the insurer's sound regulatory solvency position and the compliance of the insurer's financial performance ratios with criteria benchmarks for the insurer's rating after the pro-forma modelling.
Fitch noted that it used the following key assumptions, which are designed to identify areas of vulnerability:
--Decline in key stock market indices by 35 percent relative to 1 January 2020.
--Increase in two-year cumulative high-yield bond default rate to 13 percent, applied to current non-investment grade assets, as well as 12 percent of 'BBB' assets.
--For the non-life and reinsurance sectors, a negative impact on the industry-level accident year loss ratio from COVID-19-related claims at 3.5pp, partially offset by a favourable impact from the auto line averaging 1.5 percent points.
Fitch Ratings is the US Corporation, known primarily as one of the three most respected international rating agencies, along with Standard & Poor’s and Moody’s. A positive rating from an agency such as Fitch Ratings is a kind of guarantee for investors of the financial reliability of a business, city or state.
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