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
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
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.
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