Fitch Affirms AMANAT Insurance at IFS ‘B’; Outlook Stable

Fitch assigns 'BB' IDR to Kcell JSC; Outlook Stable

Fitch Ratings-Moscow/London-17 October 2016: Fitch Ratings has affirmed Kazakhstan-based AMANAT Insurance’s (AMANAT) Insurer Financial Strength (IFS) rating at ‘B’ and National IFS rating at ‘BB+(kaz)’. The Outlooks are Stable.

The ratings continue to reflect AMANAT’s negative underwriting result and ‘weak’ score under Fitch’s factor-based Prism model, although both have improved since 2014. The ratings also take into account the track record of moderate capital support from the shareholder and the low quality of AMANAT’S investment portfolio.

AMANAT’s combined ratio improved considerably to 118% in 2015 from 137% in 2014, supported by the strengthening of the loss ratio and the expense ratio. AMANAT’s loss ratio decreased to 50% in 2015 from 58% in 2014, and benefited in particular from an improved loss ratio for general third party liability business, which decreased to 29% in 2015 from 122% in 2014.

In 9M16 AMANAT reported a negative underwriting result of KZT140m. However, this was offset by the stronger investment result of KZT230m. The combined ratio improved to 105% (9M15: 120%), with loss ratio of 49% (50%), despite the negative underwriting result of the general third party liability business.

Since 2015 AMANAT has focused on decreasing administrative expenses via staff optimisation and IT automation. AMANAT’s administrative expense ratio consequently fell to 52% in 2015 from 60% in 2014, with a further improvement to 47% at 9M16 (9M15: 57%).

AMANAT’s net income improved to KZT705m in 2015 from a net loss of KZT1.1bn in 2014. This was primarily driven by KZT1.5bn FX gains on investments (2014: KZT215m FX gains), which arose in the context of a severe devaluation of Kazakh tenge in 2015. In the absence of FX gains, the insurer’s net result improved slightly to a KZT818m loss in 2015 (2014: net loss of KZT1.3bn).

AMANAT’s shareholder injected KZT560m into the company in 2015 to support the regulatory solvency margin. Capital had fallen to 93% of minimum regulatory requirements at end-4M15 and returned to compliant levels throughout the rest of 2015, standing at 105% at end-9M16.

Like its Kazakh peers, AMANAT is exposed to the immaturity of the local capital market and at end-2015 44% of the investment portfolio was kept on deposit in local banks, mainly rated in the ‘B’ category.

In 2015 AMANAT’s compound annual growth rate for premium income was 35%, mainly due to growth in motor damage and commercial property lines. Fitch considers balanced premium growth and a diversified business portfolio important to the further successful development of the company.

The ratings could be upgraded if AMANAT returns to profitable underwriting results on a sustained basis and the average asset credit quality of its investment portfolio improves.

Capital depletion either due to underwriting or investment losses without financial support from the shareholder, or failure to meet regulatory solvency margin requirements could lead to a downgrade.