Even though the economic and financial consequences of the pandemic will test Kazakhstan insurers' resilience over the next 1-2 years, the agency's outlooks on the rated Kazakhstani insurance companies "remain stable, underpinned by their sufficient capitalization relative to the rating level", S&P noted.
The agency expects that growth prospects of the local P/C sector to remain muted and the recovery in 2021 to largely depend on the macroeconomic environment, purchasing power and business activity. For the life sector the agency keeps a positive view expecting its growth in 2020-2021 around 15% this year supported by regulatory environment.
S&P believes that after more than 2 months of adjusting operations and business models to the challenging environment, the local insurance market is "overall more resilient to a recession than other industry sectors". At the same time, several insurance business lines will be under pressure in terms of volume, "given that the modest level of disposable income among Kazakhstan's citizens continues to impede their propensity to save".
Among the lines that are most affected directly by the crisis, S&P noted travel, corporate, motor, and medical insurance. But, to "some extent the expected decline in major lines of business might be mitigated by the rate increases some players already implemented in early 2020". The life insurers have brighter prospects and the agency expects regulatory initiatives to foster the development of the life market in the mid-term, like introduction of unit-linked products, support of education and others.
S&P expects that future underwriting dynamics both for non-life and life sectors will be under pressure and insurers will likely implement cost-saving measures in later 2020 to sustain earnings. According to the agency, investment income will prevail in all local insurers' results. Net combined ratio for non-life market will be around 90-92% (vs 81% in 2019) and return on equity (ROE) about 13-14%, while the average life ROE will be around 20% and return on assets about 4%.
S&P still views "as positive that the overall credit quality of rated insurers' investment portfolios has improved over the past two years to the 'BB+' to 'BBB-' rating range from the 'B' to 'BB' range three years ago. This is thanks to strict regulatory oversight and more conservative investment policies", the agency emphasized.