BAKU, Azerbaijan, Oct.30
By Nargiz Sadikhova - Trend:
Fitch Ratings affirmed Insurer Financial Strength (IFS) Ratings of Kazakhmys Insurance Company (Kazakhmys Ins) at 'BB-' and National IFS at 'BBB+(kaz)', the outlook on the ratings is Stable, Trend reports with reference to the agency.
The ratings have been removed from Rating Watch Negative (RWN), on which they were placed in June 2019.
“The removal of the RWN follows the return by the Kazakh insurance regulator to looser reserving standards from 30 September 2019. If the tighter reserving regulations are not withdrawn, Kazakhmys Ins could be exposed to the risk of non-compliance with its prudential metrics, including solvency margin and coverage of net technical reserves by certain classes of liquid assets," said the agency
"Kazakhmys Ins was one of the most affected local non-life players by the new regulations due to its focus on general third-party liability insurance (GTPL) and more than 90 percent reinsurance cessions for the line,” the report said.
As noted in the report, before the withdrawal of the tighter regulations became known, Kazakhmys Ins had cut its GTPL to one percent during first five months of 2019 and supported the business volumes with cargo risks in 1H2019 and accident risks in 3Q2019.
“At end-3Q2019 Kazakhmys Ins's solvency margin stood at a very strong 224 percent and the coverage of net technical reserves with liquid assets at 4.79x. Fitch believes that the risk of non-compliance with the regulatory prudential metrics has decreased significantly and the insurer could return to its regular business mix,” the report said.
Furthermore, Kazakhmys Ins's written premiums fell 15 percent on a gross basis but grew 15 percent on a net basis (after the reinsurance) in 3Q2019 from 3Q2018. The insurer reported a net income of one billion tenge ($2.5 million) in 3Q2019, a notable weakening from 2.5 billion tenge ($6.4 million) a year earlier.
“The ratings could be upgraded if Kazakhmys Ins reduces its dependence on reinsurance, provided that the company achieves a repositioning of its business mix and maintains asset risk at the present level. The ratings could be downgraded if the credit quality of Kazakhmys Ins's investment portfolio deteriorates, the regulatory solvency margin falls below 120 percent on a sustained basis, or if the quality of the reinsurance protection worsens,” the report said.
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