S&P affirmed Kazakhstan-based Kazkommerts-Policy at ‘B+’ and ‘kzBBB-‘; outlook negative

Dec. 24. Trend

By Elena Kosolapova

S&P affirmed Kazakhstan-based Kazkommerts-Policy at 'B+' and 'kzBBB-'; outlook negativeStandard & Poor’s Ratings Services affirmed its counterparty credit and financial strength ratings on Kazakhstan-based Insurance Co. Kazkommerts-Policy JSC at ‘B+’, the agency reported on Dec. 24. The outlook remains negative.

At the same time, S&P affirmed the Kazakhstan national scale rating at ‘kzBBB-‘.

“The ratings on Kazkommerts-Policy reflect Kazkommerts-Policy’s vulnerable business risk profile and less-than-adequate financial risk profile. We combine these factors to derive our ‘bb’ anchor for Kazkommerts-Policy. The final rating is two notches lower than the anchor, reflecting our assessment of management and governance as weak,” the agency said.

S&P considers Kazkommerts-Policy to be an insulated subsidiary from its parent, Kazkommertsbank, because of the regulatory framework and because the subsidiary’s stand-alone credit profile is above the group credit profile of the parent.

The assessment of Kazkommerts-Policy’s competitive position is constrained by the company’s small premium base in absolute terms, its geographic focus on Kazakhstan, and the company’s still weak underwriting performance. S&P revised its score for risk position to intermediate from moderate, reflecting the investment portfolio’s decreasing concentration risk and given no immediate negative impact on the additional sources of earnings and volatility from Kazkommerts-Policy’s expansion into the retail sector. The agency notes that the company’s investment risk is lower than that of its peers because it holds a high proportion of its investments in government bonds (about 30 percent of invested assets as of Oct. 1, 2013).

The assessment of the risk position is a reflection of the high level of high-risk assets to total adjusted capital (56 percent as of Oct. 1, 2013) and concentration of the investment portfolio on the corporate sector (34 percent) which makes the company reliant on the financial strength of Kazakh issuers.

The negative outlook reflects the view that Kazkommerts-Policy will find it difficult to retain its market position in Kazakhstan, given still declining insurance premiums for the first nine months of 2013 and the company’s negative underwriting results.

S&P will likely lower the long-term rating if Kazkommerts-Policy’s weaker operating performance and competitive standing damage the company’s business risk profile. S&P also notes that the weakening of investment credit quality to the ‘B’ category can negatively affect the financial risk profile and subsequently the long-term rating.

If the agency were to perceive Kazkommertsbank’s actions as having a negative influence on the company’s operating results or infringing the rights of policyholders, it would also consider a negative rating action. S&P rating on Kazkommerts-Policy would likely to be at most one notch higher than that on Kazkommertsbank. Thus, a negative rating action on Kazkommertsbank would likely lead to a similar rating action on Kazkommerts-Policy.

A positive rating action is a remote possibility at this stage. S&P could revise the outlook to stable if underwriting performance improves and the company achieves net income in excess of 200 million tenge (153.60 tenge = $1) in 2013-2014.