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FOR IMMEDIATE RELEASE
LONDON - FEBRUARY 06, 2019 12:03 PM (EST)
AM Best has affirmed the Financial Strength Rating of C+ (Marginal) and the Long-Term Issuer Credit Rating of “b-” of JSC Insurance Company Centras Insurance (Centras) (Kazakhstan). The outlook of these Credit Ratings (ratings) remains stable. Concurrently, AM Best has withdrawn the ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect Centras’ balance sheet strength, which AM Best categorises as adequate, as well as its marginal operating performance, very limited business profile and weak enterprise risk management.
Centras’ balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best Capital Adequacy Ratio (BCAR), at the strong level at year-end 2018. However, risk-adjusted capitalisation is volatile and it deteriorated during the year due to an increase in the company’s underwriting risk. AM Best expects prospective BCAR scores to remain strong; however, they are dependent on the company’s ability to support increased capital requirements through retention of earnings. The company’s weak financial flexibility and its elevated investment risk profile, due to the high financial system risk in Kazakhstan, negatively affect the balance sheet strength assessment.
Centras’ performance has been volatile, with return on equity ranging between -22.7% and 39.7% over the 2013–2017 period. Technical performance is weak, as demonstrated by a five-year weighted average combined ratio of 111.2% (2013–2017). According to preliminary GAAP financials, the company’s underwriting result deteriorated in 2018, as demonstrated by a combined ratio of 115.2% (2017: 101.9%), principally due to an increase in expenses. The company generated net profit of KZT 1.1 billion for the year (2017: KZT 288 million), supported by material income from foreign exchange gains.
Centras has a good competitive position in the relatively small and fragmented Kazakh non-life market. However, the company’s relatively small size and limited diversification, as well as the challenging operating environment in Kazakhstan, make sustaining this position difficult. Based on regulatory returns as of 1 January 2019, Centras ranked fifth out of 23 non-life insurers, with gross written premium (GWP) of KZT 11.4 billion (approximately USD 34.5 million), translating into a 5% market share. In 2018, the company posted material growth in net written premium, partly due to the acquisition of parts of the insurance portfolios of two competitors, as well as increased premium retention of property and third-party liability business. Centras’ net underwriting portfolio remains focused on compulsory motor third-party liability; however, concentration in this line reduced in 2018.
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