Eurasia is a majority-owned subsidiary of its non-operating holding company, Eurasian Financial Company JSC (Eurasian Financial), also domiciled in Kazakhstan.
The negative outlook on Eurasia's Long-Term ICR reflects A.M. Best's view that whilst the company's underwriting performance has improved from 2015, when it reported a combined ratio of 140.0%, it remains volatile and has not returned to its historical strong level. Eurasia faces intense competition and a fluctuating operating environment in its foreign and local markets, which creates concerns as to the company's ability to maintain strong underwriting results over the long term.
The ratings reflect Eurasia's balance sheet strength, which A.M. Best categorizes as strong, as well as the company's strong operating performance, neutral business profile and appropriate enterprise risk management.
Eurasia's balance sheet strength is underpinned by its risk-adjusted capitalization, which is maintained at the strongest level, low dependence on reinsurance and an adequate reserving approach that has led to reserve redundancies. The company has taken steps in recent years to improve the quality of its investment portfolio. However, its asset base remains heavily exposed to the high financial system risk in Kazakhstan, which is an offsetting rating factor.
Eurasia's ultimate parent, Eurasian Financial, has a negative impact on the insurer's balance sheet strength assessment, primarily due to its ownership of JSC Eurasian Bank, which has a weak credit profile. Regulatory restrictions in Kazakhstan prohibit extraction of capital from a subsidiary to its detriment, which somewhat offsets the risk of a sudden capital withdrawal from Eurasia. However, the level of financial flexibility and liquidity that Eurasia derives from the group is limited.
Eurasia's operating performance is strong, with the company reporting a five-year weighted average combined ratio of 96.9% and return on equity of 19.0% (2013-2017). Eurasia's technical results have been subject to volatility, for example due to large losses or local currency devaluation and a subsequent strengthening of reserve provisions on foreign business. In spite of this, Eurasia has reported positive operating earnings in each of the past 10 years.
A.M. Best's assessment of Eurasia's business profile as neutral stems from its dominant role in the local (re)insurance market and its geographical diversification through international inwards reinsurance, which provides Eurasia with the flexibility needed to respond to negative market trends in Kazakhstan. However, Eurasia does not have an established profile in any of its international markets and faces material competition from larger (re)insurers.