The revision of the outlooks to positive from stable reflects improvement in Halyk-Life's operating performance in recent years, supported by economies of scale due to the merger in 2018 of sister insurer, Kazkommerts Life Insurance Company, JSC (Kazkommerts Life), and good investment returns.
"The Credit Ratings (ratings) reflect Halyk-Life's balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management," AM Best stated.
The merger between Halyk-Life and Kazkommerts Life has strengthened its competitive position in segments such as pension annuities and savings products. Halyk-Life's operations are limited to its domestic insurance market (which is small by international standards) and remains subject to a high degree of regulatory risk. In addition, the company remains highly dependent on third-party distribution channels, especially for its credit life business.
Halyk-Life's balance sheet strength is underpinned by risk-adjusted capitalisation that is categorised as strongest, as measured by Best's Capital Adequacy Ratio (BCAR), based on unaudited 2019 year-end regulatory returns. AM Best mentioned that it expects the company's prospective BCAR to remain at the strongest level, helped by good operating results and a dividend policy that allows for a sufficient level of earnings retention to support the company's growth plans.
"AM Best views positively enhancements to the company's capital management framework, including the recent implementation of a risk-based capital concept to assess its capital adequacy. The company's investment portfolio is relatively conservative, with fixed-income securities, cash and bank deposits accounting for over 90% of the company's investments as at year-end 2019. However, Halyk-Life remains exposed to high financial system risk in Kazakhstan and maintains a sizeable asset-liability duration mismatch, which could affect its balance sheet strength over the longer term," AM Best further explained.
Halyk-Life is a wholly owned subsidiary of JSC Halyk Bank, a leading retail bank in Kazakhstan. Halyk-Life is a leading insurer in Kazakhstan's life insurance market, with an estimated market share of 39%, based on 2019 GWP.Halyk-Life reported a return on equity of approximately 33% at the end of 2019 (2018: ~24%).