AM Best has affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of “bb-” 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 risk-adjusted capitalisation to remain at the strongest level supported by positive operating results and the absence of dividend payments, as it executes is strategic business plan. In addition, Kommesk’s balance sheet strength considers the company’s comprehensive reinsurance programme, which is backed by a panel of reinsurers of sound financial strength. Offsetting rating factors include the relatively low credit quality of the company’s investment portfolio and its exposure to high financial system risk in Kazakhstan.
Kommesk’s achieved a five-year (2016-2020) weighted average return-on-capital ratio of 14.0%, mainly supported by investment returns. Historically, underwriting performance has been marginal. However, in 2020, Kommesk improved its operating performance, with the company reporting a combined non-life ratio of approximately 97% compared with 120% in 2019 (as calculated by AM Best). The improvement was driven by the re-underwriting of the motor third-party liability business using stricter underwriting criteria, which resulted in a lower loss ratio. Whilst technical results have strengthened in 2020, uncertainty remains on the sustainability of the 2020 levels of underwriting profitability, given Kommesk’s significant growth of its voluntary motor book, which generates higher losses and incurs higher acquisition costs.
Kommesk is a small insurer operating solely in the competitive Kazakhstan market. The company’s underwriting portfolio is concentrated, with two-thirds of its 2020 net written premiums sourced from compulsory and voluntary motor business. At the end of 2019, Kommesk established a new life subsidiary, Centras Kommesk Life JSC, which underwrites domestic workers’ compensation business. Whilst the company’s current consolidated market share remains small at 2%, based on 2020 gross written premiums, profitable growth into the life segment has the potential to improve Kommesk’s business profile over the short-to-medium term.
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