LONDON--(BUSINESS WIRE)--A.M. Best Europe – Rating Services Limited has upgraded the issuer credit rating (ICR) to “bbb+” from “bbb” and affirmed the financial strength rating (FSR) of B++ (Good) of Eurasia Insurance Company JSC (Eurasia) (Kazakhstan). The outlook for both ratings is stable.
The upgrade reflects a strengthened level of risk-adjusted capitalisation together with improved financial performance and the maintenance of a good competitive position within the local insurance market. Eurasia’s ultimate parent remains significantly exposed to the local Kazakh banking sector.
Eurasia’s strong level of risk-adjusted capitalisation improved further in 2010, with the full retention of profits and a marginal reduction in net premium income. A.M. Best anticipates that the company’s relatively high level of capital and surplus, equal to KZT 42 billion (USD 283 million) at the end of 2010, is to be further supplemented by the retention of earnings over the medium term in order to support any future growth in premium income. Eurasia’s capital position is exposed to reinsurers of low or unknown credit quality, although the company has taken steps to reduce this exposure.
In 2010, Eurasia saw a decrease in gross premium income of around 17%, driven by a reduction of foreign inwards reinsurance business. At the same time, the company’s share of the Kazakh market fell marginally to 12%, with the local market experiencing overall growth of 16%. The decline in Eurasia’s premium income is largely a result of the company not renewing several inwards reinsurance contracts, which it believed to be underperforming.
Results for 2010 are expected to be excellent for Eurasia, with pre-tax profits likely to reach KZT 12 billion (USD 81 million). This has predominantly been caused by significant reserve releases, which have driven the company’s combined ratio down to 27.1% after a high of 94.5% in 2009. Although A.M. Best believes that volatility in underwriting performance is strongly linked with Kazakh reserving regulations and the company’s changing business profile, a good level of underwriting profitability is anticipated in future years.
A.M. Best’s analysis of Eurasia’s immediate parent company, Eurasian Financial Company JSC (EFC), draws attention to its significant exposure to the local Kazakh banking sector through ownership of the Eurasian Bank, which is regarded to be of vulnerable credit quality.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Assessing Country Risk”; and “Understanding BCAR for Property/Casualty Insurers”. Methodologies can be found at www.ambest.com/ratings/methodology.
The ratings were changed following an appeal to the initial rating outcome due to additional information provided by the company.
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.
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