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Fitch Places AMANAT Insurance on Rating Watch Negative
July 13, 2017 / 10:04 AM / 5 months ago

Fitch Places AMANAT Insurance on Rating Watch Negative

(The following statement was released by the rating agency) MOSCOW/LONDON, July 13 (Fitch) Fitch Ratings has placed Kazakhstan-based AMANAT Insurance's (AMANAT) Insurer Financial Strength (IFS) rating of 'B' and National IFS rating of 'BB+(kaz)' on Rating Watch Negative (RWN). KEY RATING DRIVERS The rating action follows 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. The rating reflects AMANAT's weak capitalisation, improved financial performance and the weak, albeit improving, credit quality of its investments. AMANAT's license suspension followed a supervisory inspection from NBK in 1Q17. The company's license was suspended for compulsory business due to a number of violations, including failure to implement recovery measures and inaccuracies in solvency margin calculations. The company has agreed a number of remedial actions with the regulator, including the injection of additional capital by the shareholder. Fitch believes that this license suspension is significant for AMANAT's credit profile given its focus on motor lines, in particular compulsory motor third-party liability (MTPL) which made up 14% of the company's gross written premiums in 2016. AMANAT's reported regulatory solvency margin was 109% at end-2016, a slight improvement from 101% at end-2015. The company has little cushion in terms of the regulatory solvency margin and is at risk of non-compliance over time. Fitch views significant strengthening of the regulatory solvency position as unlikely in the short term. Based on Fitch's Prism factor-based model AMANAT's risk-adjusted capitalisation was below 'somewhat weak' based on 2016 results, slightly lower than the 2015 result. Target capital increased due to a modest growth in net business volumes while dividend payments reduced available capital. AMANAT reported a lower net income of KZT154 million in 2016 compared with KZT705 million in 2015. Unlike in 2015, the financial result was adversely impacted by the revaluation effect of foreign currency-denominated investments. To a lesser extent, it was supported by stronger investment returns of KZT317 million, with investment yield growing to 10.7% in 2016. In 5M17 the company reported a net income of KZT253 million underpinned by further robust investment income and positive underwriting results. The company reported continued improvement of the combined ratio to 103% in 2016 from 118% in 2015 (2014: 137%), with the administrative expense ratio shrinking significantly to 44% in 2016 from 60% in 2014. The company is focused on reducing administrative expenses via staff optimisation and increased IT automation. AMANAT's reduced loss ratio of 38% (2015: 50%) was another driver of the improved underwriting result in 2016. Bank deposits accounted for 42% of the AMANAT's total investments at end-2016 compared with 52% at end-2015, and stood at 45% at end-5M17. All deposits are held in local banks mainly rated in the 'B' category. Fitch believes there are risks from the weak average credit quality of these instruments, which is mainly attributable to the limited financial standing of the banking system of the Republic of Kazakhstan. RATING SENSITIVITIES Fitch will resolve the RWN as follows: The ratings are likely to be downgraded if the company's compulsory lines license is not restored, if the shareholder fails to provide the necessary capital support or if significant franchise damage occurs as a result of license suspension. The ratings are likely to be affirmed upon restoration of the licence and injection of funds as required by NBK, provided significant franchise damage has not occurred as a result of the license suspension. 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 Senior Director Stephan Kalb +49 69 768076 118 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email:; Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures 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. 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