A.M. Best Assigns Credit Ratings to JSC IC Kazkommerts-Policy

A.M. Best Assigns Credit Ratings to JSC IC Kazkommerts-Policy

A.M. Best has assigned a Financial Strength Rating of C++ (Marginal) and a Long-Term Issuer Credit Rating of “b+” to JSC IC Kazkommerts-Policy (Kazkommerts-Policy) (Kazakhstan). The outlook assigned to these Credit Ratings (ratings) is stable. Kazkommerts-Policy is a majority-owned subsidiary of JSC Kazkommertsbank (Kazkommertsbank), the largest bank in Kazakhstan.

The ratings reflect Kazkommerts-Policy’s developing business profile, supportive level of risk-adjusted capitalisation and volatile underwriting results. The ratings also consider Kazkommerts-Policy’s exposure to the heightened country risk in Kazakhstan.

Kazkommerts-Policy’s business profile has undergone material changes in recent years due in particular to changes in its senior management and modifications in the regulatory environment in Kazakhstan. In 2015, Kazkommerts-Policy’s premium base increased by a third to KZT 10.4 billion (approximately USD 30.5 million) as it merged with another Kazakh insurer, JSC BTA Insurance SC of the BTA Bank JSC (BTA Insurance), following an exchange of assets between their parent banks. The company’s premiums grew further in 2016 to KZT 13.2 billion (approximately USD 38.7 million) as of September, due to several large contracts underwritten and an increase in premiums under certain policies as a result of the depreciation of the Kazakh tenge in the prior year. Despite this recent growth, A.M. Best believes that the company’s small size by international standards, combined with the intensely competitive conditions and the deteriorating economic environment in Kazakhstan, limits its ability to defend its market position and maintain synergy effects from its merger with BTA Insurance.

A.M. Best expects Kazkommerts-Policy’s risk-adjusted capitalisation to be maintained at a supportive level for its ratings in the medium term. The company’s balance sheet is impacted negatively by its high net catastrophe exposure arising from the earthquake risk in Kazakhstan. Additionally, A.M. Best notes the exposure of Kazkommerts-Policy’s asset base to the high financial system risk in Kazakhstan, with over 30% of its fixed-income portfolio being of vulnerable credit quality.

Kazkommerts-Policy historically has reported underwriting losses primarily due to its high expenses relative to premiums and losses from its workers’ compensation run-off portfolio. However, underwriting performance improved in 2016, demonstrated by a combined ratio of 69.4% (under national accounting standards) for the first nine months of the year compared with the weighted average of 114.5% reported for 2011-2015. The improvement was attributed to strong premium growth, as well as to reserve releases from the workers’ compensation book due to some policyholder-specific benefits and a change in claims’ development pattern following legislative amendments enforced in 2015 that limit insurers’ liability for workers’ compensation claims.

Kazkommerts-Policy’s financial strength currently is not considered to be affected by the vulnerable credit profile of its parent, Kazkommertsbank. This reflects A.M. Best’s consideration of the regulatory restrictions in Kazakhstan that prevent a material capital withdrawal from an insurance subsidiary.

The rating assignments follow an accepted appeal from Kazkommerts-Policy, in which new material information was provided that enhanced A.M. Best’s opinion of the company’s risk-adjusted capitalisation and subsequently resulted in a change to the original ratings determination.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.

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