A.M. Best Affirms Ratings of Eurasia Insurance Company JSC

LONDON--(BUSINESS WIRE)-- A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of B++ (Good) and issuer credit rating (ICR) of “bbb+” of Eurasia Insurance Company JSC (Eurasia) (Kazakhstan). The outlook for both ratings is stable.

Eurasia’s risk-adjusted capitalisation remains strong. Good internal capital generation has been supported by the full retention of earnings. Despite the commencement of dividend payments from 2011, risk-adjusted capitalisation is expected to continue to be maintained at a sufficiently strong level to support the company’s ratings. A negative factor relates to Eurasia’s investments and reinsurance placements with low credit quality institutions. Eurasia maintains exposure to Kazakhstan’s banking and corporate sector, which exposes the company to the high financial system risk of the country. Additionally, 40% of outstanding claims recoverables (totalling KZT 406 million) are expected from reinsurers with vulnerable or unknown ratings.

Eurasia consistently generates good operating performance. A pre-tax profit lower than the KZT 12.1 billion reported in 2010 (2009: KZT 4.6 billion) is expected in 2011, primarily due to a decline in technical profits. A combined ratio of 26.7% in 2010 (2009: 94.5%) was primarily supported by significant reserve releases due to a change in reserving methodology to a statistical based approach. Prior to 2010, reserves were established on a prescriptive basis as per Kazakh regulatory requirements. Going forward, operating performance is expected to remain good, although subject to some volatility, due to Eurasia’s changing business mix.

Eurasia benefits from its strong competitive position in the Kazakhstan market, where it maintains a 14.3% share of the market. The company underwrites a well diversified portfolio of insurance (representing 60% of gross written premiums) and reinsurance business focusing on short-tailed commercial risks. Eurasia is expected to focus on the growth of its reinsurance business outside Kazakhstan in the medium term, in line with the strategy to improve the diversification of its business. A.M. Best will continue to monitor Eurasia’s growth and profitability as it expands.

Eurasia’s ultimate parent, Eurasian Finance Company JSC, remains significantly exposed to the local Kazakh banking sector through its subsidiary, Eurasian Bank, which is considered to have vulnerable credit quality. The credit profile of the banking affiliate is not currently viewed to negatively affect A.M. Best’s opinion of Eurasia's financial strength, largely due to the company’s operation within a regulatory regime, which makes the removal of capital from an insurance subsidiary relatively difficult.

A positive rating action would depend on the quality of investments, stability of operating performance and demonstrable improvement in Eurasia’s competitive position outside of the Kazakhstan market.

Key factors that could trigger negative rating actions include a downward trend in underwriting performance, deterioration in risk-adjusted capitalisation and the credit quality of investments, and sustained increase in credit risk exposure associated with the company’s reinsurance placements. A decline in country risk fundamentals also could have a negative impact on Eurasia’s ratings.

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. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; “Rating Member of Insurance Groups”; and “Assessing Country Risk.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company.Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Deniese Imoukhuede,+(44) 207-397-0277
Senior Financial Analyst
[email protected]
or
Carlos Wong-Fupuy, +(44) 207-397-0281
Senior Director
[email protected]
or
Rachelle Morrow, +(1) 908-439-2200, ext. 5378
Senior Manager, Public Relations
[email protected]
or
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Co.