FITCH Ratings: double digit growth rates to be expected in the Kazakh market

Fitch Ratings says in a new report that the Kazakh insurance market is forecast to grow at double-digit rates in 2017-2021, given the recovering economy and the current low levels of insurance penetration.

The insurance penetration rate (gross written premiums as a percentage of GDP) in Kazakhstan is low by international standards. After a dip in 2014, non-life penetration recovered to 0.58% of GDP in 2016. The penetration rate in life insurance is even lower, only 0.12% of GDP. This leaves significant growth potential for the Kazakh insurance sector.

However, Kazakh insurers remain exposed to a challenging operating environment with volatile real economic growth, which has slowed over the last three years and is only now starting to pick up again. Inflation is high and volatile. This makes it challenging for insurers to set appropriate prices for insurance policies. Kazakh insurers also face significant investment and foreign exchange risks.

The asset allocation of Kazakh insurance companies reflects the immaturity of the local capital market, explaining the high share of bank deposits and bonds. This, coupled with foreign exchange rate risks, could have a negative impact on the profitability of Kazakh companies.

The Kazakh insurance sector remains strongly capitalised, with the sector's net leverage ratio (net premiums and technical reserves to equity) standing at 1.4x in 2016. Fitch believes that leverage ratios will deteriorate moderately in the context of top-line market growth, if no new capital is generated or injected.

In 2016 total market net premiums grew by 15%, with the non-life sector being the main contributor. Compulsory lines helped the non-life market return to double-digit growth.

With the Kazakh economy gradually stabilising again and adjusting to external shocks, Fitch believes that growth in the Kazakh insurance market will be focused on voluntary P&C (Property & Casualty) lines in 2017.

The full report, titled "Kazakh Insurance: Growth Potential but Challenging Operating Environment'", is available at www.fitchratings.com.

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