2008-11-10 04:36:02 -
www.ambest.com - A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of "bbb" of Eurasia Insurance Company JSC (Eurasia) (Kazakhstan). The outlook for both ratings is stable.
The ratings reflect Eurasia's leading position in the Kazakhstan insurance and reinsurance markets, its very good business profile, strong risk-adjusted capitalisation and excellent financial performance. An offsetting factor is its sharp decline in retention level and its limited financial flexibility.
A.M. Best believes that Eurasia is likely to maintain its leading position in the domestic market as the key insurer and reinsurer, with a very good business profile that is supported by a continued increase in reinsurance business. Eurasia successfully maintained its share of
non-compulsory business (over 80%) with its main focus on property risks, followed by cargo and a diminishing reliance on liability risk. Furthermore, Eurasia is expanding its business into international markets; however, this is likely to take some time to materialize with A.M. Best expecting Eurasia to remain as a locally-orientated insurer/reinsurer for the next two to three years.
Eurasia has a strong risk-adjusted capitalisation supported by steady profitability and a no-dividend policy. Going forward, A.M. Best believes that Eurasia's risk-adjusted capitalisation is likely to improve further and is supportive of projected growth of approximately 5% per annum over the next two years. Eurasia's capital and surplus has been ring-fenced by the ultimate shareholder to ensure the continual development of the insurance operation. A.M. Best is of the opinion that the ratings remain dependent on the company maintaining its strong capital position.
In A.M. Best's view, Eurasia's operating performance in 2008 and 2009 is likely to remain at a very good level, although with slightly declining pre tax profits. This is compared to Eurasia's excellent performance results in 2007 with pre tax profits of KZT 8.7 billion (USD 74 million) mainly driven by underwriting income along with a very good combined ratio of 56.7%. The forecasted decline in overall operating performance is due to a decrease in net premiums written. This is a result of the sharp decline in the retention ratio to 44.8% (78.5% in 2007) due to a change in the retrocession strategy during 2008, with Eurasia following its overall conservative approach and retroceding more business for some riskier classes of business. A.M. Best anticipates Eurasia to continue with this strategy for the next few years; however, A.M. Best believes that a further decline in retention level could have an impact on the company's business profile.
Nevertheless, Eurasia's underwriting performance is expected to be very good over the next few years with a combined ratio of around 58% -60% and underwriting income remaining the main source of the company's profits. Investment returns for 2008 and 2009 are expected to produce moderate results of approximately 8% (8.3% in 2007) following Eurasia's revised investment strategy.
For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
A.M. Best Co.
Analysts:
Anna Orlovskaya, +(44) 20 7626 6264
anna.orlovskaya@ambest.com
Mahesh Mistry, +(44) 20 7626 6264
mahesh.mistry@ambest.com
or
Public Relations:
Jim Peavy, +(1) 908 439 2200, ext. 5644
james.peavy@ambest.com
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
rachelle.morrow@ambest.com 
