AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of bbb- of Halyk-Life, Life Insurance Subsidiary Company of the Halyk Bank of Kazakhstan, JSC (Halyk-Life) (Kazakhstan). Halyk-Life is a wholly owned subsidiary of JSC Halyk Bank (Halyk Bank), a leading retail bank in Kazakhstan. The outlook assigned to these Credit Ratings (ratings) is stable.
These rating actions follow the completion of the merger of sister insurer, Kazkommerts Life Insurance Company, JSC (Kazkommerts Life), into Halyk-Life in November 2018, and the conclusion of AM Bests assessment of the companys credit fundamentals.
The ratings reflect Halyk-Lifes balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management.
Halyk-Lifes balance sheet strength is underpinned by risk-adjusted capitalisation that is categorised as strongest, as measured by the Bests Capital Adequacy Ratio, based on unaudited 2018 year-end regulatory returns that include the impact of the merger. AM Best expects risk-adjusted capitalisation to remain at the strongest level, supported by solid internal capital generation. Due to the recent regulatory changes that prevent the company from reinsuring workers compensation with local non-life insurers, Halyk-Lifes retention is expected to increase materially, but this is supported by the post-merger increase in available capital. The investment portfolio is relatively conservative, with fixed income securities, cash and bank deposits accounting for over 90% of the companys investments as at 2018 year-end. However, the company remains exposed to high financial system risk in Kazakhstan and maintains a sizeable asset-liability duration mismatch, which could affect its capital position over the longer term.
Halyk-Life is a leader in the Kazakh life market, with an estimated post-merger share of 44%, based on 2018 gross written premiums. AM Best expects the merger with Kazkommerts-Life to strengthen Halyk-Lifes competitive position in segments such as pension annuities and savings products. However, this is subject to execution risk, particularly given the increasing level of competition in the Kazakh life market. In addition, the company remains highly dependent on third-party distribution channels, especially for its credit life business. Halyk-Lifes operations are limited to the Kazakh insurance market, which is small by international standards and remains subject to high regulatory risk.
Operating performance has been good, as demonstrated by an estimated five-year (2014-2018) weighted return on equity of 23%. However, this return includes a large foreign exchange gain, incurred in 2015. Profits have been driven principally by strong business growth and positive investment performance, although the high investment earnings should be viewed in the context of the high inflationary environment in Kazakhstan in recent years. Over the longer term, there is uncertainty about the performance of the workers compensation business – a long-tail class – due to relatively limited experience in the market.
This press release relates to Credit Ratings that have been published on A.M. Bests website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Bests Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Bests Credit Ratings. For information on the proper media use of Bests Credit Ratings and A.M. Best press releases, please view Guide for Media – Proper Use of Bests Credit Ratings and A.M. Best Rating Action Press Releases.
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