Fitch upgrades IFS of Kazakhstan’s NOMAD Insurance company to ‘B’

July 19. Trend

Fitch upgrades IFS of Kazakhstan's NOMAD Insurance company to 'B'Fitch Ratings has upgraded Insurer Financial Strength (IFS) rating of Kazakhstan’s JBC Insurance Company NOMAD to ‘B’ from ‘B-‘ and National IFS rating to ‘BB+(kaz)’ from ‘BB-(kaz)’, the agency reported on Thursday. The Outlooks are Stable.

According to the report, the upgrades reflect NOMAD’s good track record of profitability, adequate risk-adjusted capitalization and good market position in the Kazakh insurance market.

“NOMAD has historically reported positive underwriting profitability with the average combined ratio at 62.6 percent in 2006-2011 and the loss ratio averaging 17.4 percent in the same period,” the report said. Fitch expects NOMAD will continue to underwrite profitable business in a context of high premium growth.

Offsetting these positive rating factors, individual large accounts have represented a significant part of NOMAD’s income and profits since 2009, and Fitch expects this to continue.

Fitch mentioned that NOMAD’s regular insurance portfolio is concentrated in compulsory motor third-party liability (MTPL; 43 percent of GWP in 5M12). This exposure could negatively impact NOMAD if compulsory MTPL tariffs are liberalised or adjusted from their current high level, the agency believes.

According to Fitch, NOMAD’s quality of investments is relatively poor, with significant holdings of sub-investment-grade debt, albeit this is a common feature for insurers in Kazakhstan. The level of diversification is also low with 59.3 percent of assets concentrated with Kazakh banking groups. However, the liquidity profile of these investments is satisfactory, Fitch said.

Fitch believes NOMAD’s private ownership is negative for the ratings. This follows the significant dividends paid by the company in 2011 and five months of 2012 as well as uncertainty over the extent to which NOMAD’s shareholder will have to support the growth of a recently acquired life insurance company, the report said.

According to the report, triggers for a downgrade would include a material deterioration of NOMAD’s risk-adjusted capital or a fall in the statutory solvency margin below 100 percent, any indication that the shareholder is not willing or able to support NOMAD or a material deterioration in the credit quality of NOMAD’s investments.

The ratings could be upgraded if NOMAD becomes less dependent on MTPL and reduces the credit risk that it is exposed to through various fronting agreements, the report said. If NOMAD proves its ability to sustainably grow the business without external support from its shareholder, the ratings could also be upgraded.