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Fitch Affirms Kazakhstan's Amanat at 'B'; Outlook Stable
November 24, 2017 / 10:17 AM / 24 days ago

Fitch Affirms Kazakhstan's Amanat at 'B'; Outlook Stable

(The following statement was released by the rating agency) LONDON, November 24 (Fitch) Fitch Ratings has affirmed Kazakhstan-based Joint Stock Company Insurance Company AMANAT's (AMANAT) Insurer Financial Strength (IFS) Rating at 'B' and National IFS Rating at 'BB+(kaz)' and removed them from Rating Watch Negative (RWN). The Outlooks are Stable. KEY RATING DRIVERS AMANAT's ratings were placed on RWN in July 2017 following the decision of the National Bank of Kazakhstan (NBK) to suspend AMANAT's license for compulsory lines of business for three months effective 5 July 2017 due to a number of violations, including failure to implement recovery measures and inaccuracies in solvency margin calculations. The resolution of the Rating Watch follows the recommencement in October 2017 of AMANAT writing its compulsory business. AMANAT's gross written premiums (GWP) fell 26% yoy in the three months following the license suspension; however, on a net basis the reduction was only 12% and Fitch does not believe that the company's franchise has been significantly damaged by the suspension. Its GWP in the first 10 months of 2017 grew 6% yoy, due to aggressive growth in the compulsory motor third-party liability (MTPL) segment in 1H17. Fitch views prudent underwriting in the MTPL segment as crucial to the company's future ability to the underwriting business. Aggressive growth, accompanied by weak underwriting results, would be credit-negative. AMANAT's shareholder injected additional capital of KZT300 million as required by NBK in October 2017. As a result, the regulatory solvency margin stood above the minimum requirement of 100% at end-October 2017. Fitch believes that AMANAT's risk-adjusted capital position will strengthen in 2017 due to slightly decreased net business volumes, though the company's Fitch-calculated Prism Factor-Based Model (FBM) score is expected to remain within the higher range of 'Somewhat Weak' category. Today's rating actions also follow Fitch's review of AMANAT's financial profile and preliminary financial metrics based on 10M17 statutory reporting. The ratings reflect AMANAT's weak capital position and the weak credit quality of the company's investment portfolio. For the first 10 months of 2017 AMANAT reported net profit of KZT366 million, up from KZT659 million a year ago, as stronger investment returns offset a modest underwriting loss. Its return on equity decreased to 10% from 20% during the same period. AMANAT's combined ratio slightly worsened to 103% for the first 10 months of 2017 from 89% a year ago, but is still commensurate with the rating level, as administrative expenses rose. The increase in administrative expense ratio to 51% from 41% is due to lower net business volumes. The loss ratio remained at 29%, in line with levels for the first 10 months of 2016. RATING SENSITIVITIES An upgrade of the ratings is unlikely in the near term given AMANAT's weak business profile, concentrated business mix and fairly weak capital position. The rating could be downgraded if AMANAT realises underwriting or investment losses to the extent that capital is depleted without financial support from the shareholder. Failure to meet regulatory solvency margin requirements or further regulatory interventions could also lead to a downgrade. Contact: Primary Analyst Anastasia Surudina Analyst +7 495 956 5570 Fitch Ratings CIS Limited Valovaya Street, 26 Moscow 115054 Secondary Analyst Sam Mageed Director +44 20 3530 1704 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. 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