KAZAKHSTAN: A.M. Best assigns ratings to Kommesk-Omir Insurance Company

13 February 2015 —
A.M. Best has assigned a financial strength rating of C++ (Marginal) and an issuer credit rating of "b+" to Kommesk-Omir Insurance Company JSC (Kommesk), (Kazakhstan). The outlook assigned to both ratings is stable.

The ratings reflect Kommesk's marginal business profile in the Kazakh insurance market, volatile operating performance and adequate risk-adjusted capitalisation.

Kommesk maintains a marginal business profile as the 23rd insurer in Kazakhstan (ranked on gross written premium) with a 1.5% market share at year-end 2014. The company's underwriting portfolio is heavily weighted toward compulsory motor third-party liability and health business, which combined account for more than 50% of its premium volume. However, due to the intense competitive conditions and reduced profitability of its core lines of business, Kommesk is expected to further penetrate the voluntary third-party liability and motor hull lines of business to support its growth. Although the company's well-established direct distribution network is likely to support its expansion, for example, through prospects arising from cross-selling opportunities, A.M. Best believes that Kommesk's marginal business profile makes its earnings potentially susceptible to sudden and unexpected changes in the operating environment, typical within the Kazakh insurance market.

Kommesk's operating performance has been volatile, as demonstrated by a return on capital ranging between 1.2% and 21% over the past five years, partly due to the effect of fluctuating premium volumes. In particular, a change in regulation in 2012, which required the company to transfer its workers' compensation portfolio to the life sector, resulted in a rise in the expense ratio to more than 50% (from 40.3% in 2011). Additionally, earnings have been subject to volatile claims experience, with Kommesk producing loss ratios of between 42% and 64% over the same period. Given the ongoing intense competitive conditions of the domestic insurance market in an already weakened operating environment, the company is likely to face challenges achieving stable and profitable growth of its earnings.

Kommesk's risk-adjusted capitalisation is expected to remain at an adequate level in 2015, as growth in its capital base is likely to outpace capital requirements to support its underwriting exposures. The company's balance sheet is protected by a conservative investment portfolio, consisting of mainly cash and fixed income securities. Additionally, Kommesk benefits from a secure panel of reinsurers for its ceded business.

Positive rating actions will be subject to Kommesk stabilising its operating results as it expands within the retail segment of the market.

Negative rating actions could occur if there were a decline in Kommesk's earnings or deterioration in the quality of its asset risk profile, resulting in the weakening of the company's risk-adjusted capitalisation.  Read the full story KAZAKHSTAN: A.M. Best assigns ratings to Kommesk-Omir Insurance Company
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