(The following statement was released by the rating agency)
Aug 02 -
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Summary analysis -- Eurasia Insurance Co. ------------------------- 02-Aug-2012
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CREDIT RATING: Country: Kazakhstan
Local currency BB/Positive/--
Primary SIC: Insurance
carriers, nec
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Credit Rating History:
Local currency Foreign currency
13-Dec-2010 BB/-- --/--
24-Jun-2009 BB-/-- --/--
06-Jun-2008 B+/-- --/--
23-Nov-2007 NR/-- --/--
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Rationale
The rating on Eurasia Insurance Co. reflects still-high industry and country risks in Kazakhstan and potentially high credit risks stemming from the company's investments in the local banking sector and domestic corporate issuers. In Standard & Poor's Ratings Services' view, Eurasia Insurance's extremely strong risk-based capital adequacy ratio helps mitigate these risks, as well as its position as the leading domestic insurer and reinsurer in Kazakhstan and good operating performance over the past several years.
In our view, Eurasia Insurance's competitive position is gradually improving, thanks to its steadily expanding international book of business. With a market share of 11.6% based on net premiums written (NPW), Eurasia Insurance is the leading insurer in Kazakhstan, followed by Halyk-Kazakhinstrakh (7.4%) and Nomad Insurance (7.0%).
In 2011, Eurasia Insurance maintained its dominant position in Kazakhstan's inward reinsurance with a market share of about 85%. Although its geographic focus is mainly on the Commonwealth of Independent States (CIS), Eurasia Insurance also reinsures risk in 68 countries. We view as positive that Eurasia Insurance's competitive standing is supported by its reinsurance capacity, which is the largest in the domestic market; good quality of service and expertise; and an advanced information-technology (IT) platform.
The company has maintained sound operating results over the past several years. The five-year average net combined ratio is 63%. In 2011, the return on equity (ROE) was 20% and the return on revenues (ROR) 54%. We anticipate that Eurasia Insurance will be able to maintain a net combined ratio of less than 80%, thanks to a stable expense ratio and a low loss ratio. The net combined ratio is a loss-and-expense metric, the lower the ratio the more profitable the insurer. The ROE in 2012 is likely to be about 20%, which is in line with the company's five-year average results.
In May 2012, Eurasia Insurance's share capital reached Kazakhstani tenge (KZT) 40 billion (about $260 million), reinforced by additional profits of KZT2.6 billion (about $17 million). In our view, Eurasia Insurance has maintained extremely strong risk-based capital adequacy. We do not foresee the company's risk-based capital falling to below a very strong level. By contrast, we assess capitalization as good, and somewhat weaker, because of the small absolute size of the capital base.
The investment portfolio's average credit quality has stabilized at about 'BB', with diversification into adequate-quality foreign Eurobonds. On Dec. 31, 2011, 86% of the investment portfolio comprised bonds and 14% cash and deposits with domestic banks. We don't anticipate a significant change in the quality and mix of investments, but credit quality could be pressured by vulnerable investments in Kazakh instruments.
Outlook
The positive outlook reflects that we might raise the ratings if Eurasia Insurance is able to further enhance its competitive position, increasing premium volumes, while delivering sound operating results and maintaining its current investment profile.
We could revise the outlook to stable if Eurasia Insurance's competitive standing deteriorated, due to a significant decline in premiums, and the company subsequently loses its leading positions in the market. Weaker operating results, reflected in a net combined ratio of more than 100%; worsening credit quality of investments; or significant deterioration of the capital position could trigger a downgrade.
Related Criteria And Research
-- Refined Methodology And Assumptions For Analyzing Insurer Capital, Using The Risk-Based Insurance Capital Model, June 7, 2010
-- Interactive Ratings Methodology, April 22, 2009
-- Counterparty Credit Ratings And The Credit Framework, April 14, 2004
(Bangalore Ratings Team, Hotline: +91 80 4135 5898, Bhanu.priya@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net)
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