Best’s News & Research Service - December 22, 2014 11:02 AM (EST)
A.M. Best Downgrades Ratings of Nomad Life Insurance Company JSC
London //BestWire// - A.M. Best has downgraded the financial strength rating (FSR) to C++ (Marginal) from B- (Fair) and the issuer credit rating (ICR) to "b+" from "bb-" of Nomad Life Insurance Company JSC (Nomad Life). The outlook for these ratings is stable.
Nomad Life is a subsidiary of Nomad Insurance Group Limited, a private non-operating company. Both entities are domiciled in Kazakhstan.
The downgrade of the ratings of Nomad Life reflects A.M. Best's expectation of a significant decline in the company's risk-adjusted capitalisation to a weak level in 2014, due to the material increase in reserve provisions associated with the compulsory workers' compensation account. This portfolio has experienced significant growth since the company first commenced underwriting this class in 2012, with a 32% rise in gross written premiums to KZT 11.6 billion (approximately USD 63.7 million) in October 2014 (based on unaudited regulatory returns) compared to the same period in 2013. The expansion of this account comes against a backdrop of significant uncertainty surrounding the Kazakh insurance market with regard to the adequacy of reserve provisions for this line of business. Given this factor, A.M. Best does not consider there to be sufficient margins within Nomad Life's risk-adjusted capitalisation to support the risks inherent within its operation going forward.
Nomad Life's results are expected to remain positive in 2014, with an increase in pre-tax profits from the KZT 466 million (approximately USD 2.6 million) reported in 2013, underpinned by premium growth and better investment returns in the year.
The ratings of Nomad Life also reflect its relatively small size (by international standards), which A.M. Best views as reducing its ability to defend against sudden changes in the operating and regulatory environment. The capital management strategy of the company is to maintain a solvency margin at the minimum level prescribed by the Kazakh regulator, which makes Nomad Life highly dependent on external support from its shareholder.
There are no positive rating pressures at present. A further decline in Nomad Life's risk-adjusted capitalisation, either due to a decrease in the quality of its asset base or in operating performance, or as a result of a material deficiency in its reserve provisions, will likely result in negative rating actions. Additionally, deterioration in the economic conditions of Kazakhstan may result in downwards rating 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.
Key insurance criteria reports utilised:
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- Rating Members of Insurance Groups
- Rating New Company Formations
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
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