S&P Global Ratings assesses industry and country risk in the Kazakh non-life sector (-/Stable/-3) as moderate

S&P Global Ratings assesses industry and country risk in the Kazakh non-life sector (-/Stable/-3) as moderate, which reflects high country risk resulting from a highly centralized political environment and moderate GDP growth.

Country risk is assessed by S&P as high due to low predictability of policy responses, moderate level of economic wealth and remaining challenges to monetary policy credibility. S&P believes that economic trends are putting pressure on the domestic P/C sector's operating environment. The banking sector weighs on insurers' asset quality. But despite being on a declining trend Kazakhstan's average yield on investments (around 9% for the insurance market in 2017) is higher than that of developed economies. The insurance sector showed more resilience against macroeconomic challenges compared with banks partly due to the nature of the insurance business and a low level of insurance penetration in the country (about 0,6% of GDP in 2017), said S&P.

Industry risk is assessed as intermediate which reflects S&P's view about the sector's profitability supported by a sound underwriting performance and investment activity as well as moderate growth prospects and regulatory initiatives in the non-life insurance. S&P views the industry risk as similar to that of some Middle Eastern countries and Eastern European countries. The five-year average return on equity (ROE) of the sector is 20.9% and a net combined ratio is 95%.

Barriers to entry reflect the limited number of new market players as well as possible further consolidation of the market following tighter regulatory controls. According to S&P the established regulatory framework is positively different from those in some of CIS countries, but is still less effective than those of more developed western markets. Gradual strengthening of the regulatory framework over the past 10 years was a reaction to several fraudulent schemes in the insurance market and mismanagement, this process is still going with the regulator closely monitoring the market and suspending insurance companies' licenses when necessary.

Among other negative factors the agency pointed that the existing insurance models for catastrophic events in the country are not developed and require forecasting and analysis, considering that parts of the country face potential exposure to natural disasters. Besides that - the non-life sector's growth volatility over the past 5 years. In real terms the total market showed a decline of 4% in 2017 compared with 9% growth in 2016. This decline mostly comes from the non-life sector, which dropped in 2017 by 6%, compared with growth of 11% in the life sector. The non-life sector volatility is caused by certain insurance companies; in particular, those that insure financial risks, as noted S&P. The agency expects in 2018 nominal growth from premium increase in the corporate segment, expected revival of car sales and annual increase of the minimal tariff for MTPL.

Kazakh insurance market is highly concentrated: 25 companies working in non-life and 7 companies working in life sectors. Consolidation is under way with the dominance of particular local insurers in a relatively small market with simple insurance products prevailing. Distribution has a demonstrable effect on insurance market penetration.

Based on 2017 result S&P positively assessed the non-life sector's profitability. In 2017 the net combined ratio amounted to about 97% and ROE - almost 13%, which means that underwriting performance was better than in the Russian insurance market. But at the same time the results were weaker than in the previous years due to loss reserve strengthening and increased acquisition costs for non-life insurers.

The report "Insurance Industry and Country Risk Assessment: Kazakhstan Property/Casualty" is available at

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