GWP of the Kazakh P/C insurance market in 2019 are recovering after their drop by 2.7% in nominal terms in 2018, but, according to S&P, the market growth may continue to be volatile, depending on the banking sector and macroeconomic development. The agency expects that the sector's profitability will remain solid with return on equity (ROE) of around 15%-20%, local P/C insurers' combined (loss and expense) ratio below 100% and investment yield around 8%-10%, similar to the average level in 2017-2018, including revaluation gains.
S&P considers country risk in Kazakhstan as currently high, similar to Russia, Turkey, Kenya, and Jordan; and its economic environment is putting pressure on its P/C insurance sector's operating conditions, which remain challenging. The agency noted that the real wealth of the Kazakh population remains low with primary focus on articles of first necessity rather than insurance. In addition, low payment culture and poor financial literacy hamper the development of the P/C sector, which leads to domination of simple products like motor insurance. In 1H2019 annualized spending on insurance was about USD 70 per capita, although it shows a positive trend (vs USD 54 per capita in 2018).
S&P assesses industry risk for Kazakhstan's P/C insurance sector as moderately low, at the same level as in Italy, China, Israel, Korea, and South Africa. This assessment considers the volatile dynamics of the sector's premiums, which stem from the relatively immature stage of market development. S&P believes that the P/C insurance sector growth depends highly on regulatory actions and the dynamics of the banking segments.
The agency also noted that the regulatory framework has strengthened over the past decade and the regulator has been proactive in its reaction to some players' misbehavior and manipulation of financials (in the past two years seven licenses of P/C insurers were suspended), thus leading to noticeable market consolidation (TOP-3 P/C insurers accounting for around 62% in 1H2019 vs 47% two years ago).
According to S&P, Kazakhstan P/C insurance companies' product risks remain moderate with domination in portfolios of such simple products as motor insurance (about 25%-30%) and property insurance (around 25%).
The agency expects the Kazakhstan's P/C insurance premium dynamics to be volatile in the future. Despite that the sector's GWP increased by 6.6% in 1H2019 in nominal terms, real growth adjusted for inflation was only around 1%, and the growth was supported mainly by increasing average price and penetration in the obligatory motor insurance segment, as well as increasing retail lending, especially, mortgages, where insurance contracts are sold as a by-product.
Full report on insurance industry and country risk assessment of the Kazakhstan's P/C sector can be found on the S&P's website.