Baku, Azerbaijan, Dec. 30
By Elena Kosolapova - Trend: Standard & Poor's Ratings Services is keeping its 'B+' long-term counterparty credit and insurer financial strength ratings and 'kzBBB-' Kazakhstan national-scale rating on Kazakh Kazkommerts-Policy on CreditWatch, where they were placed with negative implications on Oct. 20, 2014, the rating agency said on Dec. 30.
"The CreditWatch placement reflected a similar rating action on Kazkommerts-Policy's parent, Kazkommertsbank (KKB)," the rating agency said.
Kazakhstan-based KKB acquired 46.5 percent of BTA Bank earlier this year and obtained operational control. KKB subsequently executed a share buyback, which weakened its capitalization on a consolidated basis.
"Meanwhile, we continue to consider Kazkommerts-Policy to be a strategically important subsidiary of KKB based on our group rating methodology. We do not, however, add any notches of support to the rating on Kazkommerts-Policy because the insurer's 'b+' stand-alone credit profile is one notch higher than the 'b' group credit profile for KKB. As per our group rating criteria, we consider the company to be insulated from its parent and, therefore, able to have a rating higher than its parent," S&P said.
This is because the regulatory framework provides some protection for the insurer in the event of adverse intervention from its parent. The regulatory framework also includes constant oversight from the National Bank of the Republic of Kazakhstan. Following the expected consolidation with BTA Insurance, the rating agency could revise the company's status as an insulated insurance subsidiary.
However, 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 ratings on Kazkommerts-Policy continue to reflect its less-than-adequate competitive position, constrained by the company's small premium base in absolute terms, geographic focus on Kazakhstan, and negative underwriting performance. The financial risk profile is constrained by the overall credit quality of its investments, which is--on average--in the 'BB' category. However, capital and earnings are moderately strong considering the current capital adequacy and expected premium growth.
S&P revised its liquidity assessment to 'strong' from 'exceptional'. This reflects that the amount of insurance liabilities on the company's balance sheet grew substantially relative to the amount of liquid assets. However, liquid assets are currently sufficient to cover insurance liabilities.
The resolution of the CreditWatch placement will depend on the commitment of support from the Kazakh government with regards to working out problem assets at KKB and BTA and any other developments that might change the assessment of the consolidated bank's capital. S&P expects to resolve CreditWatch placement within the next 90 days.
The rating agency could lower its rating on Kazkommerts-Policy if it downgrades KKB. S&P rating on Kazkommerts-Policy will likely be at most one notch higher than that on KKB.
The rating agency would also consider a negative rating action if it were to perceive KKB's actions as having a negative influence on the company's operating results or infringing on the rights of policyholders. A negative rating action could also follow if S&P were to witness that any expected consolidation with BTA Insurance could weaken the company'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 the parent, assuming it continues to believe that Kazkommerts-Policy is an insulated subsidiary from its parent, according to the criteria.
Elena Kosolapova is Trend Agency's staff journalist, follow her on Twitter: @E_Kosolapova