BAKU, Azerbaijan, Sept. 15
By Fakhri Vakilov – Trend:
Risk-adjusted capitalization of Uzagrosugurta according to the Fitch Ratings' factor model Prizma improved to “somewhat weak” at end-2020 compared to “weak” at end-2019 due to strong profit generation in 2020 and reduced business volumes, Trend reports citing Fitch Ratings.
Fitch Ratings has affirmed the financial strength rating of Uzbek insurer Uzagrosugurta JSC at the “BB-” level, the forecast is Stable.
The rating is in line with Uzbekistan's Long-term Local Currency Issuer Default Rating (IDR) of 'BB-'. Equalization of the company's rating with the IDR of Uzbekistan reflects the fact that the company is owned by the state and has systemic significance for the agricultural sector.
Uzagrosugurta focuses on providing insurance coverage to the agricultural sector, whose contribution to Uzbekistan's GDP remains one of the key. The company also manages a diversified portfolio of traditional risks in the non-life insurance segment. The systemic importance of the company is supported by a number of regulatory acts, including a stop-loss mechanism, which limits the share of losses on cotton and grain crop insurance policies to 80 percent of collected premiums for this type of insurance.
The government plans to offer a significant minority stake in the company to strategic investors to help the insurer strengthen its professional competence, improve corporate governance standards, and raise additional capital. At the same time, Fitch currently expects the government to retain control over the company due to its role in the agricultural insurance segment. Fitch would view such a transaction as credit neutral if Uzagrosugurta remains under government control and remains systemic to the agricultural sector.
In 2020, Uzagrosugurta reported profitable underwriting performance in the non-life insurance segment, with a combined ratio of 96 percent in 2020, which represents an improvement from 105 percent in 2019, due to a significant reduction in administrative costs.
Fitch views the company's investment risk as high relative to mature markets. Uzagrosugurta has a significant ratio of equity instruments at the level of 34 percent to the total equity of the company at the end of 2020. The rest of the investments are fixed income instruments in the form of bank deposits, which are fairly well diversified and placed mainly in state-owned banks. Fitch notes that the company's ability to improve diversification is constrained by the narrowness of the investment market in Uzbekistan.
Factors that, individually or collectively, could lead to a positive rating action / rating upgrade are: increase the long-term IDR of Uzbekistan in local currency by one level; factors that, individually or collectively, could lead to negative rating action/downgrade: decrease in the long-term IDR of Uzbekistan in local currency by one level; significant change in Fitch's opinion on the relationship of Uzagrosugurta with the state.
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