Insurers in the Commonwealth of Independent States (CIS) face volatile operating environments and geopolitical instability in the region, according to a new special report by AM Best. In the research, titled, CIS Insurers Navigate Geopolitical Instability and Regulatory Changes, AM Best notes that whist the overall economy for the CIS improved in 2018 compared with prior years, challenges for the insurance sector remain.
Valeria Ermakova, senior financial analyst, said: AM Best notes that insurers in the region are contending with an evolving regulatory environment, limited investment options and currency fluctuations. As local regulators make progress toward risk-oriented supervision, companies are faced with additional costs and operational hurdles adjusting to the new regimes. This process can be especially difficult, given that the enterprise risk management (ERM) practices in the region are still emerging.
AM Best rates a number of companies based in Kazakhstan, Russia and Azerbaijan, and monitors insurance and economic trends in these and other CIS countries. As of 31 December 2018, more than a third of rated insurers in the CIS region had their AM Best Long-Term Issuer Credit Ratings (Long-Term ICRs) in the range of bb+ and below. These companies ratings tend to be constrained by their marginal performance, deficiencies in ERM or relatively low levels of risk-adjusted capitalisation. In contrast, the higher-rated entities with Long-Term ICRs of bbb- and above are characterised by features such as consistently good performance or established market positions.
Looking ahead, AM Best expects further market consolidation in the CIS as companies seek to improve efficiency and strengthen their business profiles. Smaller players are likely to face challenges in sustaining their technical margins and capital strength in a difficult operating environment, whilst larger participants with established brands and good internal risk controls are more likely to withstand volatile market conditions and increased regulatory scrutiny.
Yvette Essen, director of research, said: The typically high costs of sourcing insurance business in the CIS, combined with relatively high claims inflation, put pressure on technical results. A number of companies have sought to achieve economies of scale through acquisitions in an attempt to reduce their operating expenses and improve profitability. At the same time, increased regulatory oversight has resulted in some companies voluntarily exiting the market, leading to higher industry concentration “ especially amongst the largest players.
To access a complimentary copy of this report, please visit https://www3.ambest.com/bestweek/purchase.asp?record_code=282268.
AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.
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