Finding best solutions
Finding best solutions
Finding best solutions
March 28, 2013 — Fitch Ratings has assigned Kazakhstan-based IC Alliance-Life Insurance JSC (Alliance-Life) an Insurer Financial Strength (IFS) rating of ‘B’ and a National IFS rating of ‘BB(kaz)’. The Outlooks are Stable.
KEY RATING DRIVERS The ratings reflect a high concentration of Alliance-Life’s insurance portfolio in annuity business, negative net income in 2012 and the company’s short track record of operations, as well as the low credit quality of its investment portfolio. More positively, the ratings also take into account the shareholder support of KZT1bn provided in 2012 and the resulting satisfactory level of capitalisation. Alliance-Life’s insurance portfolio is significantly concentrated, with 78% of total gross written premiums (GWP) in annuity business in 2012. Fitch believes that this concentration makes Alliance-Life’s capital particularly vulnerable to longevity and interest rate risks inherent in annuity-type products and limits the company’s risk diversification. Fitch’s concerns are exacerbated by the short track record of the company’s operations, limited availability of mortality statistics and scarce investment opportunities in Kazakhstan. In particular, there is a significant duration mismatch between the assets and liabilities, due to the lack of suitable long-duration bonds.
Alliance-Life reported a net loss of KZT1bn in 2012, for the most part caused by a one-off technical reserve adjustment and increase in the administrative expenses, as the company invested in the development of new insurance products. The company does not expect net income to be positive in 2013. In 2012 the company received capital injections totaling around KZT1bn from its shareholders, which helped to maintain its equity at KZT1.4bn at end-2012 (end-2011: KZT1.4bn). The main reason for the re-capitalisation was to cover the reserving deficiencies, as revealed by internal actuarial calculations. Fitch understands the insurance reserve increase was necessary because of the change in statutory requirements for the discount rate to be used. Fitch views the capital injections positively and considers them to be evidence of the shareholder’s willingness to support the company. Following the capital injections, based on Fitch’s own internal assessment, Alliance-Life’s risk-adjusted capital position at end-2012 is in line with its ratings. The quality of Alliance-Life’s invested assets is relatively low, with significant holdings of below-investment-grade debt, in common with Kazakhstani insurers generally.
“The assigned rating confirms with the international rating agency «Fitch Ratings» stability of the Company and its interest in development of the market of life insurance. Certainly, the estimated period (2012) was for the Company one of the most difficult. In the long term the Company, intends to keep all positive experience gained for the last year of activity and to use the best efforts for improvement and life insurance development in Kazakhstan». — the Chairman of the board of the company Gulnara Alimgaziyeva noted.
Alliance Polis’s risk-adjusted capital position, as assessed by the agency, is good. The company’s statutory solvency margin was well above the required minimum in 2012 with the average level of 255% in that year. However, if premium volumes were to grow significantly, the capital and solvency position could worsen, although Fitch’s expectation is that it will still stay supportive of the current ratings.
In the review made by the experts of Fitch Ratings it says that Alliance Polis experienced operational difficulties last year, which was reflected in the decline in sales, loss of client base and deterioration in profitability. This was worsened by the merger with Pana Insurance in the first quarter of12, which put additional pressure on the company’s loss and expense ratios, but at the same time marginally improved its capital position.
Meanwhile, several days prior to the above, rating agency Expert RA Kazakhstan assigned Allaince Polis credit rating of “A” “High level of creditability”.
Positive impact on Alliance Polis’s rating was made by high levels of current liquidity ratio and amended net insurance liquidity. The Company is characterized by strongly diversified investment portfolio in terms of objects of investment, high profitability of the capital employed, and sufficiently high reliability of reinsurance protection as well as good geographical diversification.
As it was highlighted by the General Manager of Expert RA Kazakhstan Adil Mamazhanov, “JSC IC Alliance Polis demonstrates strong indicators of capitalization and solvency margin. The Company can take additional risks in the frame of its strategic development, which is supposed to be performed by the means of corporate insurance, voluntary types of insurance and regional development”
“We assess assignment of such ratings as a confirmation of strength and reliability. Alliance Polis sets a task to maintain those high standards of quality already established as well as to improve main financial indicators in a short-term perspective”, says the Chairman of the management Board Talgat Ussenov.
Alliance Polis has been working on the market of Kazakhstan since 1993, providing 7 compulsory, 15 voluntary types of insurance and reinsurance services.
As of March 01, 2013 the Company’s assets made over KZT 9.8 bn., equity – over KZT 7.1 bn., authorized capital – KZT 4.4 bn.