LONDON — APRIL 02, 2015
A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of «bbb-» of Victoria Insurance Company JSC (Victoria) (Kazakhstan). The outlook for both ratings is stable.
The ratings of Victoria reflect its excellent risk-adjusted capitalisation and solid operating performance. Negative rating factors are the company's volatile business profile and under-developed risk management framework.
Victoria's excellent level of risk-adjusted capitalisation is underpinned by its large and under-utilised capital base, which is supplemented by a high retention of earnings arising from its consistently solid operating performance. In 2014, the company reported capital and surplus of KZT 51.5 billion (approximately USD 277 million). This compared to Victoria's net premium income of KZT 3.0 billion (approximately USD 16 million). However, Victoria's under-developed risk management framework exposes its risk-adjusted capitalisation to volatility, due to the company's high (gross) risk appetite and potential accumulation of risk arising from some lines of business. This risk is amplified by Victoria's strategy of placing some of its high-loss exposures with non-secure reinsurers. Although Victoria's significant capital base provides some buffer against losses arising from these pressures, uncertainty exists with the effectiveness of the company's underwriting controls in supporting its operating results and its excellent risk-adjusted capitalisation over the long term.
Victoria's business strategy remains subject to modifications, owing to the evolving legislative environment and intensifying competitive conditions in the Kazakh insurance market. Following a strategy to rapidly develop its consumer finance protection portfolio via a local banking partner in 2013, a change in legislation which limits the availability of credit to the population has resulted in the refocus of Victoria's expansion plans within the commercial segment of the market, predominantly via its agency network. In A.M. Best's opinion, Victoria faces material execution risk in diversifying out of its personal accident- and property-weighted insurance portfolio and gaining sufficient scale in other lines of business to support its long-term profitability.
There are currently no upward rating drivers. However, positive rating actions could occur if Victoria maintains consistency in its strategic plans demonstrated through the profitable growth of earnings, whilst developing a risk management framework to protect its balance sheet. A significant decline in Victoria's operating performance due to sustained losses or unfavourable reserve development will likely result in downward rating actions. Additionally, a decline in risk-adjusted capitalisation, particularly due to the withdrawal of a significant amount of capital from the company or due to deterioration in the country risk fundamentals of Kazakhstan could also lead to negative rating pressures.
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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilised:
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- Rating New Company Formations
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
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