AM Best confirmed the financial strength rating of B- (Fair) and the issuer’s long-term credit rating of “bb-” (Fair) of Kommesk-Omir Insurance Company JSC (Kommesk) (Kazakhstan). The outlook for these Credit Ratings (ratings) is stable.
The ratings reflect Kommesk’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, very limited business profile and marginal business risk management.
Kommesk’s balance sheet strength is underpinned by its highest risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best expects Kommesk’s risk-adjusted capitalization to remain at the highest level, supported by positive operating results and no dividend payout, as it executes on its strategic business plan . In addition, Kommesk’s balance sheet strength assessment takes into account the company’s comprehensive reinsurance program, which is supported by a panel of strong financial strength reinsurers. Compensating factors include the relatively low credit quality of the company’s investment portfolio, which is concentrated in its domestic market. The ratings also take into account Kommesk’s exposure to the high levels of economic, political and financial risk associated with operating primarily in Kazakhstan, as well as the current uncertainty regarding the impact on Kazakhstan’s economy of sanctions. imposed on Russia in response to the conflict in Ukraine. .
Kommesk announced a strong five-year (2016-2020) weighted average return on capital ratio of 12.8%, mainly supported by investment returns. However, the company’s underwriting performance was marginal. In 2021, the technical result of the company should be negative. This is driven by the significant growth of the voluntary automotive portfolio, which generates higher losses and incurs higher acquisition costs than other underwritten business lines. Losses in the growing voluntary motor portfolio offset the benefits of Kommesk’s continued new underwriting of its motor liability portfolio using stricter underwriting criteria, leading to a sustainably lower loss ratio for this industry.
Kommesk is a small insurer operating only in the competitive Kazakh market. The company’s underwriting portfolio is concentrated, with more than two-thirds of its 2021 non-life net written premiums expected to come from compulsory and voluntary motor insurance. This is partially offset by a growing contribution from its life subsidiary, Centras Kommesk Life JSC, which underwrites traditional life products, retirement annuities and workers’ compensation business. The future profitable growth of the life subsidiary, whose activity in 2021 should represent approximately 15% of the consolidated gross written premium, could improve Kommesk’s commercial profile in the short and medium term by increasing the company’s market share and product diversification.
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