Fitch Forecasts Kazakh Insurance Market Growth At Double-Digit Rates

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Kazakh insurance market is forecast to grow at double-digit rates in 2017-2021, given the recovering Kazakh economy and the current low levels of insurance penetration, the International Rating Agency Fitch Ratings said in a new report called “Kazakh Insurance: Growth Potential but Challenging Operating Environment”.

Fitch noted that the insurance penetration rate (gross written premiums as a percentage of GDP) in Kazakhstan is low by international standards.
“After a dip in 2014, non-life penetration recovered to 0.58 percent of GDP in 2016. The penetration rate in life insurance is even lower, only 0.12 percent of GDP. This leaves significant growth potential for the Kazakh insurance sector,” the rating agency said.

However, according to Fitch, Kazakh insurers remain exposed to a challenging operating environment with volatile real economic growth, which has slowed over the last three years and is only now starting to pick up again. The report said that inflation is high and volatile in Kazakhstan. This makes it challenging for insurers to set appropriate prices for insurance policies.

The rating agency also noted that Kazakh insurers face significant investment and foreign exchange risks. “The asset allocation of Kazakh insurance companies reflects the immaturity of the local capital market, explaining the high share of bank deposits and bonds. This, coupled with foreign exchange rate risks, could have a negative impact on the profitability of Kazakh companies,” Fitch said.

According to the report, the Kazakh insurance sector remains strongly capitalized, with the sector’s net leverage ratio (net premiums and technical reserves to equity) standing at 1.4x in 2016. Fitch believes that leverage ratios will deteriorate moderately in the context of top-line market growth, if no new capital is generated or injected.
“With the Kazakh economy gradually stabilizing again and adjusting to external shocks, Fitch believes that growth in the Kazakh insurance market will be focused on voluntary P&C (Property & Casualty) lines in 2017,” the report said.