The following statement was released by the rating agency:
The ratings reflect Standard's volatile risk-adjusted capitalization, track record of weak technical performance and limited business profile in Kazakhstan's non-life insurance market. The ratings also take into account Standard's underdeveloped risk management framework.
In line with A.M.Best's expectations, the company's risk-adjusted capitalization declined materially in 2016, due to higher underwriting risk following its absorption of a major part of the insurance portfolio of Alliance Polis Insurance Company JSC (Alliance Polis). As at half-year 2017, Standard's risk-adjusted capitalization improved, following the non-renewal of a significant part of the recently absorbed portfolio. However, risk-adjusted capitalization remains relatively low, as measured by Best's Capital Adequacy Ratio (BCAR) and as demonstrated by a regulatory solvency margin of 1.27 as of Aug. 1, 2017 (compared to a minimum requirement of 1.00).
In 2016, the company's underwriting performance improved, benefiting from a material rise in net written premium. The company reported technical profit for the first time since 2012, when it was acquired by the current shareholders, and reported a combined ratio of 87.6% (2015: 120.9%). However, A.M. Best believes that the company will report an underwriting loss once again in 2017, due to the expected reduction in premium income and the ongoing impact of elevated expenses.
In 2016, Standard's market share improved as a result of the absorption of Alliance Polis's insurance portfolio and the addition of a number of large fronted contracts. As of Jan. 1, 2017, the company ranked 11th out of 25 non-life insurers in Kazakhstan, up from 15th a year earlier, with gross written premium of KZT 9.0 billion (approximately USD 27 million) and a market share of 3.3%. The company's prospective market ranking will depend on the retention levels of the new client base and the competitive conditions in Kazakhstan's insurance market.
The rating actions also reflect Standard's underdeveloped risk management framework, specifically with regard to monitoring its risk accumulations within Kazakhstan's earthquake-exposed areas. As a result, uncertainty exists as to the ability of Standard's reinsurance programme to adequately protect the company against a catastrophic event.
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