Best’s News & Research Service - December 18, 2015 01:06 PM (EST)
A.M. Best Revises Outlook to Negative for Standard Insurance Company, JSC
- December 18, 2015 01:06 PM (EST)
London //BestWire// - A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of B- (Fair) and the issuer credit rating of “bb-” of Standard Insurance Company, JSC (Standard) (Kazakhstan).
The revision of the outlook to negative reflects the increasing likelihood that Standard will be unable to successfully execute the business strategy originally presented to A.M. Best in 2013. In particular, the company’s plans to penetrate the bancassurance distribution channel and to develop certain niche market products have not materialised, which has subsequently resulted in worse- than- expected technical results, due to high expense pressures. Given the impact of the intensely competitive conditions on pricing and deteriorating economic environment, there is uncertainty regarding Standard’s growth prospects, hence the inability to generate positive and stable technical earnings further ahead.
The ratings also consider Standard’s marginal risk-adjusted capitalisation and developing business profile, which make the company vulnerable to sudden changes in the operating environment, typical within Kazakhstan’s insurance market.
As a young insurer, Standard continues to incur a high level of administrative expenses associated with the development of infrastructure to support its expansion. For the year to November 2015, Standard’s expense ratio increased to 77.9%, resulting in a combined ratio of 112.1% (full-year 2014: 67.5% and 105.3%, respectively). Given Kazakhstan’s highly competitive insurance market and the industry-wide practice of paying high commissions for profitable risks, Standard is likely to face challenges in effectively reducing its cost base.
Standard’s risk-adjusted capitalisation is maintained at a marginal level. The company’s balance sheet is protected by a conservative investment portfolio (by asset class) and an excellent reinsurance panel. In 2015, Standard’s shareholders provided the company with additional capital of KZT 186 million (approximately USD 0.6 million) to support its compliance with minimum regulatory solvency requirements. A.M. Best anticipates that Standard will likely remain reliant on capital contributions from its shareholders in the medium term, given the negative pressures surrounding its financial profile.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.