The ratings reflect Halyk Insurance's balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management.
The negative outlooks continue to reflect AM Best's concern around the company's operating performance assessment. Whilst technical results have strengthened in 2020 to date, uncertainty remains on whether Halyk Insurance's underwriting profitability will continue to improve in the near term, given the significant expansion of its compulsory motor third-party liability (MTPL) book, in which performance can be subject to volatility.
Halyk Insurance's balance sheet strength is underpinned by risk-adjusted capitalization at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR), and a relatively conservative investment portfolio with good liquidity. Internal capital generation is supported by a revised dividend policy. Offsetting factors for balance sheet strength include the insufficient level of catastrophe reinsurance protection and the company's exposure to the high financial system risk in Kazakhstan.
Underwriting results improved marginally in 2019, with the company reporting a combined ratio of 97.9% compared with 98.4% in 2018 (as calculated by AM Best), although results were negatively impacted by a change in reserving methodology as required by the regulator, and an increase in the acquisition cost ratio as the company expanded its MTPL business. Historically, overall profitability has been strong, demonstrated by a five-year (2015-2019) weighted average return on capital of 13.2%. However, this was partly the result of high investment returns, which reflect the inflationary environment in Kazakhstan in recent years.
Halyk Insurance is one of the leaders in its domestic non-life insurance market, ranking second as measured by gross written premiums in the first 11 months of 2020.
AM Best does not consider Halyk Insurance's financial strength to be affected by the weaker credit profile of its parent, Halyk Savings Bank of Kazakhstan JSC (Halyk Bank). This reflects AM Best's consideration of the regulatory protection that restricts extraction of capital from the insurer to its detriment.