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A.M. Best Europe – Rating Services Ltd. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of Eurasia Insurance Company JSC (Eurasia) (Kazakhstan). The outlook for both ratings is stable.
The ratings of Eurasia reflect its strong business profile within the Kazakhstan market, strong risk-adjusted capitalisation and good, albeit volatile, operating performance. The ratings also consider the company’s high country risk exposure, through its operation in Kazakhstan.
Eurasia’s competitive position in Kazakhstan is strong. The company remains the leading (re)insurer in Kazakhstan, with gross written premiums of approximately KZT 27 billion in 2012. Eurasia maintains a well-diversified portfolio of direct and reinsurance business. The inwards reinsurance portfolio is largely focused on global risks and remains the main driver for expansion, as Eurasia continues to strengthen its profile as a reinsurer.
In 2012, regulators enforced new rules relating to the use of reinsurance to encourage the domestication of (re)insurance business. Rules have been established that prescribe the level of risks that must be retained before ceding to the reinsurance market, and restricts the use of international reinsurers. Eurasia’s business profile is not expected to be materially affected by these new regulations. The requirement to cap the level of business ceded outside of Kazakhstan is likely to benefit Eurasia as the dominant reinsurer within the country. Additionally, Eurasia increasingly retains a high level of premium income in excess of the regulator’s requirements before ceding risks to the reinsurance market.
Eurasia’s risk-adjusted capitalisation is expected to remain strong, supported by a rise in paid-up capital due to the reinvestment of a large portion of dividends paid in the year. A good pre-tax profit is anticipated, although materially lower than the KZT 9.8 billion reported in the previous year. Following a number of years of reporting positive underwriting results, Eurasia is expected to produce a combined ratio above 100%, due to the high level of large losses experienced in the year. The main drivers underpinning the company’s large loss exposure relate to several satellite losses. A.M. Best expects operating performance to remain subject to volatility, due to Eurasia’s changing business mix, mainly through the expansion of its inwards reinsurance portfolio.
Eurasia’s ultimate parent, Eurasian Finance Company JSC, remains significantly exposed to the local Kazakh banking sector through its subsidiary, Eurasian Bank, which is considered to have vulnerable credit quality. The credit profile of the banking affiliate is not currently viewed to negatively affect A.M. Best’s opinion of Eurasia’s financial strength, largely due to the company’s operation within a regulatory regime, which makes the removal of capital from an insurance subsidiary relatively difficult.
Positive rating actions would depend on the quality of Eurasia’s investments, increased stability of its operating performance and demonstrable improvement in its competitive position outside of the Kazakhstan market. Key factors that could trigger negative rating actions include a downward trend in the company’s underwriting performance, deterioration in risk-adjusted capitalisation and a sustained increase in the credit risk exposure associated with Eurasia’s reinsurance placements. A decline in country risk fundamentals or the profile of its banking affiliate, Eurasian Bank, also could have a negative impact on Eurasia’s ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Catastrophe Analysis in A.M. Best Ratings”; “Rating Members of Insurance Groups”; “Risk Management and the Rating Process for Insurance Companies”; “Evaluating Country Risk”; and “Understanding Universal BCAR”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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