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FOR IMMEDIATE RELEASE
LONDON - APRIL 29, 2016 08:29 AM (EDT)
A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of Halyk-Life, Life Insurance Subsidiary Company of Halyk Bank of Kazakhstan, JSC (Halyk-Life) (Kazakhstan). The outlook for each rating remains negative. Halyk-Life is a wholly owned subsidiary of JSC Halyk Bank (Halyk Bank), a leading retail bank also domiciled in Kazakhstan.
The negative outlook on Halyk-Life’s ratings reflects uncertainty associated with the company’s capital management strategy, due to its high investment risk profile and rapid expansion. As a result of Halyk-Life’s substantial premium growth of approximately 40% on average between 2011 and 2015, an increasing volume of assets has been placed in non-investment grade fixed-income securities, reflecting the company’s high investment risk appetite and the lack of availability of better quality assets in Kazakhstan. These factors have led to the deteriorating trend in Halyk-Life’s risk-adjusted capitalisation.
Despite significant strengthening of the company’s surplus base in 2015, driven by substantial foreign exchange gains arising from its U.S. dollar-denominated holdings, Halyk-Life’s risk-adjusted capitalisation is expected to decline again, due to a planned dividend, representing approximately 40% of net profits reported in 2015. Given the current economic challenges in Kazakhstan, uncertainty exists with Halyk-Life’s capital management strategy due to the anticipated marginal capital buffers available to absorb unexpected losses arising from asset quality erosion or a rise in claims activity.
The negative outlook also reflects uncertainty associated with Halyk-Life’s expanding workers’ compensation portfolio. This account has historically been affected by industry-wide issues that have resulted in a high frequency and severity of claims for the sector. Gross written premiums derived from the workers’ compensation account more than doubled in 2015, and represent nearly a quarter of Halyk-Life’s portfolio. Growth arose due to new business generation and increased tariff rates for certain insureds, resulting from several legislative measures taken in an effort to reduce the high level of claims arising from the workers’ compensation segment. Although the new regulation is likely to support the performance of new risks underwritten, uncertainty remains with the run-off profitability of older business. These concerns are amplified by the fact that a material portion of Halyk-Life’s workers’ compensation business is reinsured with local companies maintaining marginal credit quality.
In spite of the above negative factors, the ratings continue to incorporate Halyk-Life’s positive operating results and its established business profile in its domestic market. This is partially supported by its affiliation with a wider financial services group owned by Halyk Bank. However, A.M. Best notes that the company’s competitive standing is subject to change due to the relatively young and under-developed insurance sector in Kazakhstan.
Halyk-Life’s financial strength is not considered to be currently affected by the vulnerable credit profile of its parent, Halyk Bank. This reflects A.M. Best’s consideration of the regulatory protection in place that restricts the extraction of capital from an insurer to its detriment.
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 see A.M. Best’s Recent Rating Activity web page.
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