December 22, 2017 / 12:46 PM / a year ago

Fitch Rates CJSC Kyrgyzstan 'B-'; Outlook Stable

(The following statement was released by the rating agency) MOSCOW/LONDON, December 22 (Fitch) Fitch Ratings has assigned Closed Joint-Stock Company Insurance Company Kyrgyzstan (CJSC Kyrgyzstan) an Insurer Financial Strength (IFS) Rating of 'B-'. The Outlook is Stable. KEY RATING DRIVERS The rating reflects the weak environment in which CJSC Kyrgyzstan is operating, the company's high investment risk, its weak business profile and high reserving risk. These rating weaknesses are partly offset by supportive capitalisation and sustained profitable performance. The Kyrgyz insurance market remains relatively immature, and contracted by 1% and 6% on a gross basis in 2015 and 2016, respectively, shrinking to KGS1 billion (approximately USD14 million) in 2015 and to KGS946 million (USD13 million) in 2016. In line with other CIS countries, Kyrgyzstan faced an economic downturn, which resulted in declining GDP growth rates and devaluations of national currencies. Fitch views CJSC Kyrgyzstan's investment portfolio as very low credit quality. The immature capital markets in Kyrgyzstan limit available investment opportunities. CJSC Kyrgyzstan's investments are therefore concentrated in deposits placed with local banks, which we believe are of very weak credit quality, reflecting Fitch's view of the financial condition of the Republic of Kyrgyzstan. CJSC Kyrgyzstan is the fourth-largest insurer in Kyrgyzstan by gross written premiums (USD1.1 million in 2016) with a market share of around 10%, but is very small in absolute terms by international standards and also compared with other rated peers in the CIS region. Fitch believes CJSC Kyrgyzstan is exposed to high risk of under-reserving for insurance claims. The company does not perform any assessment on the sufficiency of its loss reserves in a run-off scenario. This weakness, together with limited in-house actuarial expertise, increases the risks of adverse reserve development, with resulting implications for profitability and capitalisation. From a regulatory perspective, CJSC Kyrgyzstan is comfortably in compliance with solvency requirements with the regulatory solvency margin coverage being at 322% at end-2016. In January 2017, the regulator increased the minimum solvency capital requirements. As a result CJSC Kyrgyzstan's solvency margin coverage decreased to 111% at end-9M17. CJSC Kyrgyzstan has generated robust profits over the last five years (2012-2016). Historically, the net profit was supported by both positive underwriting and investment components. The average net income return on equity was 11% over 2013-2016. In 2016 CJSC Kyrgyzstan reported net income of KGS19 million, with underwriting income of KGS14 million and investment income of KGS10 million. Conversely, the net income was affected by debt-related interest expenses of KGS2.5 million. Results from 9M17 indicate that CJSC Kyrgyzstan will remain profitable in full-year 2017, with accrued net profit for the nine months totalling KGS6 million. RATING SENSITIVITIES A worsening of the operating environment, indicated in particular by a change in Fitch's view of the financial condition of the Republic of Kyrgyzstan, would result in a downgrade. The ratings could also be downgraded if the insurer's regulatory capital position weakens significantly or if the company experiences any material adverse reserve development. An upgrade is unlikely in the near term. Contacts: 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 Harish Gohil Managing Director +44 20 3530 1257 Date of Relevant Committee: 8 December 2017 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 Criteria (pub. 30 Nov 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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