Fitch Affirms AMANAT Insurance at ‘B’; Outlook Stable
May 21. Reuters
Fitch Ratings has affirmed AMANAT Insurance (Kazakhstan)’s (AMANAT) Insurer Financial Strength (IFS) rating at ‘B’ and its National IFS rating at ‘BB(kaz)’. The Outlook is Stable.
KEY RATING DRIVERS
AMANAT’s ratings continue to reflect adequate risk-adjusted capitalisation, volatile solvency margin, limited progress in strengthening underlying operating performance and the relatively low quality of its investment portfolio.
The insurer’s volatile solvency margin reflects growing business volumes, the absence of a capital buffer for regulatory purposes, and continuing fine-tuning of the regulator’s solvency formula, including recent regulations regarding investment quality and reserving. The margin is calculated on a monthly basis and has swung from a marginally compliant 101% to a comfortable 121% since July 2013. On a risk-adjusted basis, Fitch continues to view AMANAT’s capital position as adequate for its rating level.
AMANAT’s net profit strengthened to KZT186m in 2013 from KZT28m in 2012, benefitting from a number of regulatory changes. Insurance premiums and claims, accrued before the shift to 20% income tax from 4% revenue tax for Kazakh insurance companies in 2012, became exempt from taxation. This increased AMANAT’s deferred tax assets by KZT148m in 2013.
Another important change was the regulator’s authorisation to establish reinsurers’ share of incurred but not reported loss (IBNR) reserves. This change decreased AMANAT’s net technical reserves by KZT212m and contributed to the improvement of the insurer’s loss ratio to 15% in 2013 from 29% in 2012 and the combined ratio to 98% from 108% in the same period. The like-for-like combined ratio would have been 106% in 2013. In 4M14 the combined ratio deteriorated to 118%, mainly driven by claims in a single liability line. Based on 79% recoveries of the line’s claims through recourse in 2012-2013 the insurer expects to see an improvement in the combined ratio in 2H14.
Equities as a share of AMANAT’s investment portfolio declined to 15% at end-2013 from 19% at end-2012, albeit through a negative KZT64m revaluation. Equities also contain significant concentration per issuer. The fixed-income part of the portfolio remains of moderate credit quality. With 78% of investments represented by deposits or securities of local banks, AMANAT’s capital is highly exposed to volatility in the Kazakh banking sector. To some extent, this is a reflection of the narrow local investment market. Positively, the strengthening of the regulatory solvency requirements has created incentives for AMANAT to prioritise banks with higher credit ratings.
A rating upgrade may result from two consecutive years of underwriting and investment profits.
Significant strengthening of AMANAT’s capital position, coupled with the reduction of investment risks, could also lead to an upgrade.
Sustained failure to meet regulatory solvency requirements, in the absence of financial support from the shareholder, could lead to a downgrade.