The ratings on Grain Insurance Co. reflect Standard & Poor's view of the company's weak competitive position in international terms, weak credit quality of investments, and weak financial flexibility. These factors are offset by the company's adequate capitalization and marginal operating performance.
Since its inception in 2003, Grain Insurance Co. has specialized in insuring risks of agricultural companies in Kazakhstan, including in descending order of magnitude, property, crop, cargo, and motor third party liability insurance. For the first seven months of 2012, 91% of all risks were insured with domestic agricultural companies compared with 76% in 2011.
Despite an established market position in agricultural insurance, Grain Insurance Co.'s market share of all Kazakh insurance business remains very low (0.2% for the first eight months of 2012). With gross premium written of Kazakhstani tenge 820 million (about US$5.5 million) in 2011, Grain Insurance Co. is small in absolute terms, which negatively compares with the companies we rate in the Commonwealth of Independent States. Given the stability of Grain Insurance Co.'s client base, it is unlikely that the company's premium growth in 2012 will be significant. According to our base-case scenario, the premium will likely to be comparable with that of 2011 or slightly above. In our view, the company's growth will largely depend on the development of the Kazakhstan government's approved Agricultural Business Development Program for 2013-2020. Focused on the development of the agricultural sector, this program will foster subsidies for insuring agricultural risks and loan insurance for agricultural producers.
Grain Insurance Co.'s investment portfolio is weak, reflecting the credit quality of financial instruments it has placed--primarily in the Kazakh banking sector.
The company's financial flexibility is weak, owing to its few sources of financing, the key ones being retained earnings and funds provided by the shareholders.
In our view, Grain Insurance Co.'s adequate capitalization remains a positive factor for the rating, reflecting extremely strong risk-based capital adequacy. However, this is offset by risks associated with the sufficiency of reserving, the small size of the company's capital in absolute terms, and its not using reinsurance.
In our view, the operating results are marginal due to high volatility. According to our base case, the operating results will remain volatile in 2012-2013 because, as an agricultural insurer, Grain Insurance Co. is not immune to large losses. We also note that, with no use of reinsurance, the company's underwriting results are likely to be unpredictable.
Nevertheless, we believe that investment results will remain stable over the next two years and continue to support positive bottom-line results, since fixed-income instruments comprise the bulk of its investment portfolio. The company has generally posted strong returns on equity and revenue in recent years.
The stable outlook reflects our expectation that Grain Insurance Co. will be able to maintain adequate capitalization while preserving at least marginal operating results.
We could consider negative rating actions if Grain Insurance Co.'s operating performance meaningfully deteriorated, reflected in significant losses that started to pressure its adequate capitalization.
The likelihood of positive rating actions is limited in the near future, in our view, due to the continuing weak competitive position and weak investment portfolio.
Related Criteria And Research
-- Interactive Ratings Methodology, April 22, 2009
-- Counterparty Credit Ratings And The Credit Framework, April 14, 2004
-- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
-- Kazakh Insurers Face New Regulatory Hurdles, Aug. 13, 2012
Grain Insurance Co. JSC
Counterparty Credit Rating
Local currency B/Stable/--
Insurer Financial Strength Rating
Local currency B/Stable/--
Kazakhstan National Scale Rating kzBB+