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FOR IMMEDIATE RELEASE
LONDON - APRIL 11, 2019 10:44 AM (EDT)
AM Best has affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of “bb-” for Kommesk-Omir Insurance Company JSC (Kommesk) (Kazakhstan). The outlook of these Credit Ratings (ratings) remains stable.
The ratings reflect Kommesk’s balance sheet strength, which AM Best categorises as strong, as well as its marginal operating performance, very limited business profile and marginal enterprise risk management.
Kommesk’s balance sheet strength is underpinned by risk-adjusted that is categorised as strongest, as measured by the Best’s Capital Adequacy Ratio at year-end 2017. AM Best expects that risk-adjusted capitalisation will be maintained at the strongest level over the near term, albeit by a lower margin, as underwriting risk is expected to increase substantially at year-end 2018. Kommesk’s balance sheet strength is supported by a comprehensive reinsurance programme, backed by a panel of good credit quality reinsurers, as well as its policy to fully retain profits. An offsetting rating factor is the low credit quality and limited diversification of the company’s investment portfolio.
Kommesk is a small non-life insurer operating solely in the highly competitive Kazak market. The company recorded a 5-year (2013-2018) compound annual growth rate of 33% in gross written premiums (GWP), which surpassed its domestic non-life market. In particular, Kommesk grew its GWP by 58% in 2018, improving its non-life market ranking to 6th (2017: 12th), as measured by GWP. The growth was mainly driven by motor as Kommesk benefitted from market consolidation in 2018. Despite this, the company’s share in the non-life Kazakh market remained small, at 4%, based on 2018 GWP. Kommesk’s underwriting portfolio is concentrated, with over half of its premiums sourced from compulsory motor third-party liability business.
Kommesk has overall been profitable, demonstrated by a 5-year (2014-2018) weighted average return on capital of 17%. However, profits have been volatile and driven by elevated investment returns, due to the inflationary environment in the country, which has prevailed since 2015. In addition, profits have been boosted by foreign exchange gains, owing to the company’s open currency position and the weak performance of the Kazakh Tenge. Underwriting performance has been marginal and volatile, reflected in an estimated 5-year weighted average combined ratio of 108% (2014-2018). This was primarily driven by Kommesk’s expense ratio, owing to high acquisition costs and insufficient scale. In 2018, Kommesk’s technical result deteriorated, as its expense ratio increased by 9 percentage points, due to investments required to support the insurer’s growth. Over the medium term, AM Best expects that Kommesk’s operating performance will remain volatile, with profits dependent on investment returns.
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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