20 Apr 2022

AM Best Affirms Credit Ratings of Kommesk-Omir Insurance Company JSC

AM Best has affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of "bb-” (Fair) of Kommesk-Omir Insurance Company JSC (Kommesk) (Kazakhstan). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Kommesk’s balance sheet strength, which AM Best assesses as strong, as well as its marginal operating performance, very limited business profile and marginal enterprise risk management.

Kommesk’s balance sheet strength is underpinned by its risk-adjusted capitalisation at the strongest level, as measured by the Best’s Capital Adequacy Ratio (BCAR). AM Best expects Kommesk’s risk-adjusted capitalisation to remain at the strongest level supported by positive operating results and the absence of dividend payments, as it executes its strategic business plan. In addition, Kommesk’s balance sheet strength assessment considers the company’s comprehensive reinsurance programme, which is backed by a panel of reinsurers of sound financial strength. Offsetting factors include the relatively low credit quality of the company’s investment portfolio, which is concentrated in its domestic market. The ratings also factor in Kommesk’s exposure to the high levels of economic, political and financial system risk associated with operating predominantly in Kazakhstan, as well as the current uncertainty around the impact to Kazakhstan’s economy from sanctions imposed on Russia in response to the conflict in Ukraine.

Kommesk has reported a solid five-year (2016-2020) weighted average return-on-capital ratio of 12.8%, mainly supported by investment returns. However, the company’s underwriting performance has been marginal. In 2021, the company’s technical result is expected to be negative. This is driven by the significant growth of the voluntary motor book, which generates higher losses and incurs higher acquisition costs than other lines of business underwritten. Losses in the growing voluntary motor book offset the benefits of Kommesk’s continued re-underwriting of its motor third-party liability book using stricter underwriting criteria, which have led to a sustainably lower loss ratio for that line of business.

Kommesk is a small insurer operating solely in the competitive Kazakh market. The company’s underwriting portfolio is concentrated, with over two-thirds of its 2021 non-life net written premiums expected to be sourced from compulsory and voluntary motor business. This is partially offset by a growing contribution from its life subsidiary, Centras Kommesk Life JSC, which underwrites traditional life products, pension annuities and workers’ compensation business. Future profitable growth of the life subsidiary, whose business in 2021 is expected to account for approximately 15% of the consolidated gross written premium, could enhance Kommesk’s business profile over the short-to-medium term by increasing the company’s market share and product diversification.