AM Best Revises Outlooks to Positive for Insurance Company London-Almaty JSC
The companys balance sheet assessment is underpinned by its risk-adjusted capitalisation being at the strongest level, as measured by Bests Capital Adequacy Ratio (BCAR).
AM Best has revised the outlooks to positive from stable and
affirmed the Financial Strength Rating of C++ (Marginal) and the
Long-Term Issuer Credit Rating of “b+” of Insurance Company
London-Almaty JSC (London-Almaty) (Kazakhstan).
The positive outlooks reflect the improvement in London-Almaty’s
underwriting performance in 2018, as demonstrated by a combined ratio of
94.4% (2017: 104.3%), and AM Best’s expectation of robust technical
results over the medium term. Additionally, AM Best notes a
strengthening of the company’s balance sheet strength during 2018, as it
improved the credit quality of its investment portfolio and reduced its
dependence on reinsurance.
The ratings reflect London-Almaty’s balance sheet strength, which AM
Best categorises as strong, as well as its marginal operating
performance, very limited business profile and weak enterprise risk
management (ERM).
The company’s balance sheet assessment is underpinned by its
risk-adjusted capitalisation being at the strongest level, as measured
by Best’s Capital Adequacy Ratio (BCAR). Although AM Best expects
London-Almaty’s risk-adjusted capitalisation to decline over the medium
term as a result of planned underwriting growth and dividend payments,
it is likely to remain comfortably within AM Best’s strongest
assessment. During 2018, the company reduced its exposure to credit risk
by reinvesting into better quality fixed-income securities and reducing
its reinsurance dependence by increasing risk retention on profitable
business and discontinuing a number of fronting contracts. Nonetheless,
London-Almaty’s balance sheet strength remains negatively affected by
the company’s small capital base, which increases its sensitivity to
shock events, and its exposure to the high financial system risk in
Kazakhstan.
London-Almaty has been profitable in recent years, albeit with volatile
earnings that have been dependent on investment income. Following
changes to the company’s management team in 2015, its underwriting
performance improved from historical levels, but remained dampened by
its high cost base. In 2018, London-Almaty was able to achieve a
technical profit, driven by a substantial rise in its net written
premiums of 45%, as well as management actions to contain expenses. AM
Best expects London-Almaty’s prospective underwriting results to be
positive, but dependent on its ability to control acquisition costs
whilst achieving revenue growth in a highly completive insurance market.
London-Almaty is a mid-tier insurer and ranked 13th in the Kazakh
non-life market based on 2018 gross written premiums (GWP). Despite
ambitious growth plans, success has been mixed, with GWP contracting by
approximately 11% over the past two years. The company’s approach to
risk management is focused principally on adhering to local regulatory
guidelines and requirements. An undeveloped internal risk management
framework and the company’s exposure to the heightened economic,
political and financial system risks associated with operating in
Kazakhstan remain offsetting factors in AM Best’s assessment of its ERM.
This press release relates to Credit Ratings that have been published
on AM 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 see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
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for more information.
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