TASHKENT, Uzbekistan, November 1. Fitch Ratings has affirmed Kafolat Insurance Company JSC's Insurer Financial Strength (IFS) Rating at 'B+' with Stable Outlook, Trend reports.
The affirmation reflects Kafolat's good company profile, improved investment risk, as well as weak capital position and financial performance.
As per data provided by Fitch, key rating drivers include the company’s favorable business profile compared with other Uzbek insurers', reflecting its strong competitive positioning and business line diversification.
Other key rating drivers include Kafolat’s weak capital position due to increased business volumes, in particular for inwards reinsurance.
“The insurer's regulatory capital buffer, based on a Solvency I-like formula, remained under pressure at 104 percent at the end of September 2023 (end of 2022 saw 102 percent). This was despite an increase of authorized capital to 45 billion soums ($3.7 billion) in 3Q2022 and strong financial results in 1H2023. We expect growing business volumes to continue to weigh on Kafolat's capital position,” the agency’s review stated.
Fitch’s analysis shows that significant capital depletion could potentially lead to a negative rating action or a downgrade.
Conversely, the factors that could positively affect the rating include significant strengthening of Kafolat's company profile, while maintaining a Prism FBM score at least above 'Adequate' and positive financial performance.
Kafolat is the fourth-largest non-life insurer in Uzbekistan, with a stable 8 percent market share by gross written premiums (GWP) by the end of 2022.
According to data by Fitch, Kafolat's inwards reinsurance premiums grew significantly to 224 billion soums ($18.3 million) in 2022, mainly in relation to its property business line, and accounted for 70 percent of non-life GWPs. In absolute terms, volumes of inward reinsurance more than doubled in 2022 and further grew in 1H2023.
The agency believes that this rapid growth of inwards reinsurance from abroad is a risk to Kafolat's business risk profile, as it exposes the company to more significant single large losses and volatility than its domestic business.
