A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of "bbb-" of Victoria Insurance Company JSC (Victoria) (Kazakhstan). The outlook of these Credit Ratings (ratings) remains negative.
The ratings reflect Victoria's balance sheet strength, which A.M. Best categorizes as very strong, as well as its strong operating performance, limited business profile and weak enterprise risk management.
The negative outlook reflects Victoria's inconsistent business strategy, which is subject to ongoing modification, and the potential impact this could have on the company's operating results. In 2018, a local retail insurer, Nurpolicy Insurance Company JSC(Nurpolicy), a subsidiary of Nurbank JSC (Nurbank), is expected to merge into Victoria. The two companies have the same principal shareholder. As a result of the merger, A.M. Best expects Victoria's profile to shift from large corporate business toward retail risks, such as compulsory motor third-party liability, with Nurpolicy's book expected to contribute approximately half of the net underwriting portfolio. In A.M. Best's opinion, there is material execution risk associated with the merger and Victoria's plans to expand into new business areas, due in part to its limited experience in the retail segment and its weak enterprise risk management.
Victoria has a limited business profile as a small non-life insurer operating solely in Kazakhstan's fragmented and competitive insurance market. As at Jan. 1, 2018, Victoria ranked 13th among 25 non-life insurers with a market share of just over 2%. In 2017, the company's gross written premium (GWP) totaled KZT 6.1 billion (approximately USD 18.3 million), increasing 51% from the previous year due to the addition of a number of large fronted property and liability contracts. During 2018, Victoria is expected to increase GWP by approximately 20% and net premium written by approximately 100%, largely due to the merger of Nurpolicy.
The company's balance sheet strength assessment benefits from risk-adjusted capitalization at the strongest level, as measured by Best's Capital Adequacy Ratio. The company has a track record of good internal capital generation, which has resulted in the accumulation of a large capital buffer to absorb potential volatility associated with its high (gross) risk appetite and exposure to risk accumulations. An offsetting rating factor for balance sheet strength is the exposure of the company's asset base to the high financial system risk in Kazakhstan.
Operating performance is strong, albeit subject to volatility, principally due to a frequently changing business strategy and fluctuations in investment returns. In 2017, Victoria reported after-tax earnings of KZT 4.9 billion (approximately USD 14.7 million), compared with KZT 3.2 billion (approximately USD 9.8 million) in the previous year. There were material dividend payments of KZT 7 billion (approximately USD 21 million) in both 2016 and 2017, but it is the company's current strategy to retain all earnings to support expansion over the near term.
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Laura Balkarova, +44-20-7626-6264
Associate Financial Analyst
Catherine Thomas, +44-20-7397-0281
Senior Director, Analytics
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations