Ratings Roundup: Kazakhinstrakh, Seguros Inbursa, La Colonial, CIS

A.M. Best has affirmed the financial strength rating of ‘ B++’ (Good) and issuer credit rating of “bbb” of Kazakhstan’s Halyk-Kazakhinstrakh, Insurance Subsidiary Company of Halyk Bank of Kazakhstan, JSC, both with stable outlooks. The ratings of Kazakhinstrakh “continue to reflect its excellent risk-adjusted capitalization, consistently positive operating performance and good competitive position in the Kazakh insurance market, Best explained. “Kazakhinstrakh’s risk-adjusted capitalization is expected to remain strong, supported by good internal capital generation, as demonstrated by a five-year average return on capital and surplus of 15 percent.” Best’s report also indicated that, based on national accounting standards, “Kazakhinstrakh reported a pre-tax profit of KZT 3.6 billion [$1.976 million] in 2013 (2012: KZT 3.2 billion [$1.757 million]), underpinned by an excellent combined ratio of 85 percent and solid investment earnings from its portfolio of predominantly fixed income securities.” The company is Kazakhstan’s third-largest insurer, and, Best said it “maintains a good competitive position, supported by its access to a wide distribution channel throughout Kazakhstan. Additionally, the company’s affiliation with its owner, Halyk Savings Bank of Kazakhstan JSC, allows Kazakhinstrakh to take advantage of its well-spread branch network and to capitalize on cross-selling opportunities. In 2013 Kazakhinstrakh’s gross written premiums rose by 38 percent to KZT 24 billion [$13.178 million], due to the renewal of a large offshore oil fronting contract.” The report indicated, however that a “negative rating factor is the company’s high investment risk profile. Kazakhinstrakh continues to be exposed to sub-investment grade securities, with these investments accounting for 76 percent of its fixed income portfolio. Upwards rating action could occur if Kazakhinstrakh demonstrates the successful implementation of its business strategies through growth in its earnings profile, whilst maintaining risk-adjusted capitalization at a strong level. Additionally, the company would need to evolve its risk management capabilities to support its expanding risk profile. These fundamentals would be assessed over a longer-term period.” On the other hand Best said: “Negative rating actions could occur if a decline in Kazakhinstrakh’s financial profile, particularly due to deterioration in its performance or quality of investments, were to result in the erosion of risk-adjusted capitalization to a level below Best’s expectations. A decline in country risk fundamentals of Kazakhstan could also put negative pressure on the company’s ratings.”

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Mexico’s Seguros Inbursa, S.A. Grupo Financiero Inbursa, both with stable outlooks. Best said the “ratings reflect Seguros Inbursa’s supportive capitalization and consistent and sustained earnings, historically strong investment income and diversified business profile. The ratings also reflect the company’s affiliation with Grupo Financiero Inbursa S.A.B. de C.V. (Grupo Financiero Inbursa), one of the largest financial groups in Mexico. Seguros Inbursa writes both life and non-life business and remains one of the larger and more profitable domestic insurance companies operating in Mexico.” Best explained that the “company’s focus on expense management, along with consistent levels of investment income, has historically resulted in favorable overall earnings. This has enabled Seguros Inbursa to continue to enhance its risk-adjusted capitalization. In addition, Seguros Inbursa continues to benefit from synergies and significant operating efficiencies as a result of its access to Grupo Financiero Inbursa’s vast financial and system networks.” In addition Best noted that “Seguros Inbursa has shown disciplined underwriting in a highly competitive market, while its risk-based capitalization remains fully supportive of its current ratings and outlook. Seguros Inbursa’s profitability is complemented by consistent levels of investment income.” As partial offsetting Best cited “Seguros Inbursa’s continuing underwriting losses in key business segments and its reliance on investment income for its overall earnings. In addition, the Mexican insurance market remains very competitive, and Seguros Inbursa will be challenged to maintain profitability and market share.” In conclusion Best said: “Potential positive rating triggers would include sustained improvement in Seguros Inbursa’s underwriting results in conjunction with tangible improvements in Mexico’s regulatory environment and other country risk metrics. Possible negative rating triggers would include deterioration in the company’s underwriting results, and consequently, a decline in its risk-based capitalization. While Seguros Inbursa is well positioned at its current rating level, factors that may lead to rating enhancement include sustained improvement in the company’s underwriting performance and an upgrading of Mexico’s country risk tier rating.

A.M. Best has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb+” of La Colonial, S.A. Compañia de Seguros, S.A., which is based in the Dominican Republic. The outlook for both ratings is stable. The ratings reflect La Colonial’s “solid capitalization, historically favorable operating profitability and its well-established market presence as one of the leading insurance providers in the Dominican Republic market,” Best explained; adding that “these positive rating factors are attributable to management’s commitment to effective control systems and focus on operating results. La Colonial’s financial strength is further enhanced by its comprehensive reinsurance program and strong liquidity and solvency metrics.” The report also indicated that “La Colonial has shown disciplined underwriting in a highly competitive market, while its risk-based capitalization remains fully supportive of its current ratings and outlook. La Colonial’s profitability is complemented by consistent levels of investment income, which have enabled it to steadily increase its surplus while still providing La Colonial with dividend payments.” As partial offsetting factors Best cited “La Colonial’s limited financial flexibility, geographic concentration of its business exclusively in the Dominican Republic and losses stemming from its property/casualty book of business. La Colonial’s business concentration makes it vulnerable to regulatory, economic and political influences and volatility. Moreover, La Colonial will remain challenged to increase its market share while generating consistent earnings in a very competitive and maturing market. Also, the frequency of catastrophic events in the Caribbean presents a substantial level of risk exposure to La Colonial as it formalizes its risk management program.” In conclusion Best said: “Potential positive rating triggers would include sustained improvement in La Colonial’s underwriting results in conjunction with tangible improvements in the Dominican Republic’s regulatory environment and other country risk metrics. Possible negative rating triggers include deterioration in the company’s underwriting results, and consequently, a decline in its risk-based capitalization.”

A.M. Best has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating of “a” of Panama’s Compañia Internacional de Seguros, S.A. (CIS), both with stable outlooks. Best explained that the “ratings are based upon CIS’ historical operating performance, excellent risk-based capitalization and strong market profile. As one of the largest insurers in Panama, CIS utilizes its solid risk management procedures and local market expertise to enhance its operating performance. Strong underwriting results are complemented by consistent levels of investment income derived from a conservative investment portfolio. These factors have allowed CIS to enhance its surplus considerably in recent years.” The report also indicated that “from an underwriting perspective, both property/casualty and life/health business segments have been generally profitable in recent years. CIS also maintains liquidity and solvency margins in excess of the requirement of the Panamanian Superintendent of Insurance.” As partial offsetting factors Best noted the “challenges CIS faces operating in a relatively limited and competitive insurance market,” as well as in a country that Best said it “considers to have an elevated level of country risk.” While Best said it “considers CIS well positioned at its current rating level, factors that may lead to negative rating actions include protracted adverse underwriting and overall performance, a significant deterioration in its risk-adjusted capitalization and/or a downgrading of the Panama country risk tier rating.”

Topics AM Best Mexico