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) remains stable.
The ratings reflect Kommesk’s balance sheet strength, which AM Best categorises 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 over the medium term, albeit with a smaller buffer, as the company organically grows its underwriting portfolio. In addition, Kommesk’s balance sheet strength is supported by a comprehensive reinsurance programme, backed by a panel of reinsurers of sound financial strength. Offsetting rating factors are the relatively low credit quality of the company’s investment portfolio and its exposure to high financial system risk in Kazakhstan.
Kommesk is a small non-life insurer operating solely in the competitive domestic market. In 2018, gross written premium (GWP) increased by 38%, mainly driven by motor third-party liability (MTPL) business as Kommesk benefited from market consolidation. Despite this, the company’s share in Kazakhstan’s non-life market remains small, at 3%, based on 2019 GWP. Kommesk’s underwriting portfolio is concentrated, with two-thirds of its net written premiums sourced from compulsory MTPL business. At the end of 2019, Kommesk established a new life subsidiary, Centras Kommesk Life JSC. AM Best expects the new company to underwrite local workers’ compensation business, as well as pension annuity and life insurance business. This has a potential to improve Kommesk’s portfolio diversification in the future.
Kommesk generated a five-year weighted average return on equity of 15.5% over the period 2015-2019, mainly supported by investment returns. Underwriting performance has been marginal, reflected in a five-year weighted average combined ratio of 110%, owing to high acquisition costs and the impact of insufficient scale on the company’s expense ratio. In 2019, Kommesk’s technical result deteriorated, as its loss ratio increased by 13 percentage points, due to reserve strengthening from a large single claim and an increase in paid attritional losses. Over the medium term, AM Best expects operating performance to remain marginal, with profits dependent on investment returns.
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