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A.M. Best Revises Outlook to Negative for Halyk-Life, Life Insurance Subsidiary Company of the Halyk Bank of Kazakhstan, JSC


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FOR IMMEDIATE RELEASE

LONDON - APRIL 17, 2015 10:31 AM (EDT)
A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of B+ (Good) and the issuer credit rating of "bbb-" of Halyk-Life, Life Insurance Subsidiary Company of the Halyk Bank of Kazakhstan, JSC (Halyk-Life) (Kazakhstan).

The negative outlook on the ratings of Halyk-Life reflects the deterioration in risk-adjusted capitalisation in recent years and the potential for continued weakening in the near-term, owing to the company's high investment risk profile, which coupled with its rapid expansion, has resulted in increasing volumes of premiums being held in non-investment grade fixed-income securities. This has placed pressure on the company's risk-adjusted capitalisation, with shareholders' funds growing at a much slower pace compared with premium volumes. In 2014, 53% of the company's fixed-income portfolio was either not rated or rated below investment grade.

Owing to the low level of capital buffer inherent within Halyk-Life's risk-adjusted capitalisation, there is uncertainty as to the company's ability to absorb severe losses arising from the challenging economic situation in Kazakhstan related to the Russian crisis, the country's high financial system risk and the industry-wide issues that have resulted in a rise in frequency and severity of workers' compensation claims.

Partly offsetting rating factors are Halyk-Life's track record of receiving capital contributions from its parent to support its expansion, the company's consistently positive, albeit volatile, operating performance and its established business profile, which is partly supported by its affiliation with a wider financial services group owned by Halyk Bank – a leading retail bank in Kazakhstan. However, the company is susceptible to the sudden and unexpected manner in which the legislative environment fluctuates, which can affect its premium volumes and earnings in any given year.

A revision in the outlook to stable will depend on Halyk-Life's ability to strengthen its risk-adjusted capitalisation, either through an improvement in the credit quality of its fixed-income portfolio or through an increase in its capital. Should Halyk-Life's risk-adjusted capitalisation continue to deteriorate due to its expansion, a further decline in the quality of its investments or a sustained deficiency of its workers' compensation reserves, then the ratings of Halyk-Life will likely be downgraded. A decline in Kazakhstan's country risk fundamentals could also have a negative effect on Halyk-Life's ratings.

The impact of the vulnerable credit profile of the Halyk group on the financial strength of Halyk-Life is currently considered to be limited, partly owing to regulatory restrictions that prevent the removal of material levels of capital from the company. However, should A.M. Best's perception of the stringent regulatory oversight change or should the credit profile of the Halyk group deteriorate, these factors may result in negative actions on the ratings of Halyk-Life.

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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilised:


  • Evaluating Country Risk

  • Evaluating Non-Insurance Ultimate Parents

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding Universal BCAR

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.

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.


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AMB# Company Name
091331 Halyk-Life, Life Insurance Subsidiary Co