S&P rates Insurer Kazkommerts-Policy ‘B+/kzBBB’

Oct 18. Reuters

181011-analytics-sp-rates-insurer-kazkommerts-policy-bkzbbb– In our view, Kazakhstan-based insurer Kazkommerts-Policy displays adequate operating results and capitalization, but its competitive position-in international terms-and financial flexibility are weak.

– We consider Kazkommerts-Policy to be a strategically important subsidiary of Kazkommertsbank under our group methodology. However, our assessment reflects the company’s stand-alone credit profile.

– We are assigning our ‘B+’ credit ratings and ‘kzBBB’ Kazakhstan national scale rating to Kazkommerts-Policy.

– The stable outlook reflects our expectation that Kazkommerts-Policy will be able to show sound operating results and maintain at least very strong capital adequacy.

Standard & Poor’s Ratings Services said today it assigned its ‘B+’ long-term counterparty credit and insurer financial strength ratings and ‘kzBBB’ Kazakhstan national scale rating to JSC Insurance Co. Kazkommerts-Policy. The outlook is stable.

“The ratings reflect our view of Kazkommerts-Policy’s adequate operating results and capitalization, supported by extremely strong risk-based capital adequacy,” said Standard & Poor’s credit analyst Ekaterina Tolstova. “These positive factors are offset by the company’s weak competitive position in international terms and its limited financial flexibility.”

Kazkommerts-Policy, a universal insurance company, was established in 1996. The current shareholder structure was adopted in 2008 and the company’s ultimate shareholder is Kazkommertsbank (JSC) (KKB; B/Stable/C). We consider Kazkommerts-Policy to be a strategically important subsidiary of its parent, KKB, based on our group methodology. However, our assessment of the company’s stand-alone credit profile (SACP) is higher than our rating on KKB. We believe the regulatory framework provides some protection for the company in the event of adverse intervention from its parent. Consequently, the rating on Kazkommerts-Policy reflects its SACP. Nevertheless, the rating cannot be more than one notch higher than the rating on KKB.

We assess Kazkommerts-Policy’s competitive position as weak overall, constrained by a relatively small premiums base in international terms and high industry and country risks in Kazakhstan.

With gross premiums written (GPW) of Kazakhstani tenge (KZT) 16.4 billion (about $110 million) in 2010, Kazkommerts-Policy is the second largest player in Kazakhstan’s insurance market after Eurasia Insurance Co. (BB/Stable/-), whose GPW was KZT18.8 billion (about $128 million). We note that the company’s gross results are quite volatile, owing to civil liability fronting business.

We consider the operating performance of Kazkommerts-Policy to be adequate and supported by good underwriting and investment results. Although the gross combined ratio was volatile, mainly because of fronting business, the net combined ratio is quite stable. It was 81% in 2010 after 78% in 2009.

Investment income has been stable, except during the financial market turmoil in 2009. In our view, the quality and mix of Kazkommerts-Policy’s investment portfolio are adequate. However, the portfolio is exposed to significant credit risk, some market risks, and shows a concentration of Kazakh issuers.

We believe that Kazkommerts-Policy’s capitalization is generally adequate, reflecting extremely strong risk-based capital adequacy. In our view, however, there is some dependence on reinsurance protection, the quality of which we consider to be adequate.

We view Kazkommerts-Policy’s financial flexibility as weak, constrained by its parent’s current financial profile. However, we regard the company’s adequate internal capital generation as positive.

“The outlook is stable because we expect that Kazkommerts-Policy will be able to maintain its competitive standing in the Kazakh insurance market, while showing sound operating results and keeping capital adequacy at least very strong,” said Ms. Tolstova.

We envisage that the net combined ratio will not exceed 90% in 2011-2012 and that gross technical results will likely be volatile.

A negative rating action could follow if we saw a significant deterioration of the company’s competitive position and quality of reinsurance protection or if operating results weakened, reflected in net combined ratios of more than 100%. If we were to perceive the ultimate shareholder’s actions as having a negative influence on the company’s operating results or infringing the rights of policyholders, we would also consider a negative rating action. In addition, negative rating actions on the parent, KKB, could lead to similar rating actions on Kazkommerts-Policy. In such a case, our rating on Kazkommerts-Policy would likely be at most one notch higher than that on its parent.

Positive rating actions are unlikely at this stage, in view of the credit profiles of Kazkommerts-Policy and KKB.


All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.

– , Jan. 20, 2011

– Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010

– Use Of CreditWatch And Outlooks, Sept. 14, 2009

– Interactive Ratings Methodology, April 22, 2009

– Group Methodology, April 22, 2009

– Evaluating Insurers’ Competitive Positions, April 22, 2009