A.M. Best affirms credit ratings of Halyk-Life, Halyk Bank of Kazakhstan's life insurance subsidiary

A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of "bbb-" of Halyk-Life, subsidiary of the Halyk Bank of Kazakhstan, JSC . The outlook remains negative.

Halyk-Life is a wholly owned subsidiary of JSC Halyk Bank (Halyk Bank), a leading retail bank also domiciled in Kazakhstan.

The negative outlook continues to reflect A.M. Best's concern regarding the declining level of Halyk-Life's risk-adjusted capitalisation in recent years, driven by the company's exposure to high levels of investment and credit risk and material premium growth. Following an improvement in 2015, due to significant foreign exchange gains, risk-adjusted capitalisation declined again in 2016 after dividend payments due to increased capital requirements to support the company's underwriting and credit risk.

Halyk-Life remains heavily exposed to the workers' compensation segment, which accounted for a third of its portfolio in 2016 (2015: 23%). Although A.M. Best expects regulatory changes introduced in 2015 to improve the profitability of workers' compensation business for Kazakhstan's insurers, it remains a high risk line of business due to the potential for large long-tail losses. Halyk-Life's workers' compensation portfolio is heavily concentrated, with the top five clients accounting for a third of premium volume. A.M. Best's concern is exacerbated by the fact that Halyk-Life reinsures a material part of this business to local companies with vulnerable credit profiles.

Halyk-Life continues to report positive operating results and maintains a good competitive position as Kazakhstan's largest life insurer. Additionally, the company benefits from its affiliation with a wider financial services group owned by Halyk Bank. A.M. Best notes that the company's competitive standing is subject to change due to high competition in the market and the potential for sudden regulatory changes.

A.M. Best does not consider the vulnerable credit profile of Halyk-Life's parent, Halyk Bank, to affect Halyk-Life's financial strength due, in particular, to the regulations that restrict the extraction of capital from an insurer to its detriment. On 4 July 2017, Halyk Bank announced that it had completed the acquisition of 96.81% of ordinary shares of Joint Stock Company Kazkommertsbank. Over the coming months, A.M. Best will conduct discussions with Halyk-Life's management to determine whether the acquisition will have any impact on the insurer's business strategy.

This press release relates to Credit Ratings that have been published on A.M. Best's website

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