AM Best Revises Outlooks to Positive for Insurance Company London-Almaty JSC

Business Wire

LONDON--(BUSINESS WIRE)-- 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 Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.