Best’s News & Research Service - January 10, 2014 11:45 AM (EST)
A.M. Best Assigns Ratings to Nomad Insurance Company JSC and Nomad Life Insurance Company JSC
LONDON //BestWire// - A.M. Best Europe–Rating Services Limited has assigned a financial strength rating of B- (Fair) and issuer credit rating of “bb-” to Nomad Insurance Company JSC (Nomad) and Nomad Life Insurance Company JSC (Nomad Life). Both companies are subsidiaries of Nomad Insurance Group Limited, a private non-operating company, domiciled in Kazakhstan. The assigned outlook on both ratings is stable.
The ratings of Nomad and Nomad Life reflect their marginal levels of risk-adjusted capitalisation, in addition to their relatively small size (by international standards), which A.M. Best considers to reduce their ability to defend against sudden changes in the operating and regulatory environment. The capital management strategy of both entities is to maintain a solvency margin at the minimum level prescribed by the Kazakh regulator, which makes Nomad and Nomad Life highly dependent on external support from their shareholder.
Nomad maintains an established market profile, ranking in the top 10 of the non-life domestic market. The company underwrites a range of commercial and retail risks on a compulsory and voluntary basis, with business sourced mainly through its agency network. A positive rating factor is Nomad’s strong operating performance, as demonstrated by a five-year return on net earned premium of 49%, which reflects the low claims environment in Kazakhstan. However, this factor is partly offset by the high cost of sourcing business in the country.
Nomad Life (formerly Life Insurance Company ‘Astana-Finance’ JSC) is a newly acquired subsidiary operating in the relatively small, albeit developing, life market in Kazakhstan. Nomad Life has benefited from the change in regulation, which prohibits non-life insurers from writing compulsory workers’ compensation risks. This business is expected to account for approximately half of its portfolio in 2013. Additionally, the nationalisation of privately-run pension funds has resulted in Nomad Life suspending sales of its pension annuity products. This account is expected to represent approximately 15% of gross written premium in 2013, compared to 50% in the previous year. Nomad Life’s prospective operating performance is expected to remain solid.
The assigned ratings also consider the temporary suspensions of Nomad’s and Nomad Life’s insurance licences (for certain lines of business) in 2012. This was due to control and governance issues at Nomad, and the breach of Nomad Life’s minimum solvency margin.
Positive ratings actions will depend on Nomad and Nomad Life continuing to demonstrate a track record of solid operating performance whilst strengthening risk-adjusted capitalisation. These fundamentals will be assessed over a long-term period. A decline in Nomad and Nomad Life’s risk-adjusted capitalisation, credit quality of their asset base, or additional regulatory breaches will likely result in negative ratings actions. Additionally, deterioration in the rating fundamentals of either entity due to erosion in the economic conditions in Kazakhstan may result in downwards ratings pressure.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: http://www3.ambest.com/emea/ambersdisclosure.pdf.