KAZAKHSTAN: ASIA Life assigned a 'B' rating by Fitch; Outlook Stable
KEY RATING DRIVERS
The ratings reflect the weak business profile of Asia Life, which is constrained by its small size and its limited track record. This is offset by Asia Life's capital strength and profitable financial performance. Asia Life is a small start-up life insurer founded in September 2014. The company aims to grow 16% in 2017 and 19% in 2018 in profitable market segments. Fitch views this business plan as conservative based on its implied market share of less than 6% of gross written life premiums by end-2018 (2016: 3.1%).
"However, our assessment of the business profile is weakened by the company's start-up nature, which translates into a limited track record and small size. Asia Life writes a significant and rising share of workers' compensation business. This rose to 44% on a net basis in 2016 from 29% in 2015" is mentioned in report.
The company has a conservative underwriting approach for this line relative to peers, rejecting clients with a known history of large losses. However, the considerable exposure of Asia Life's workers' compensation business and the potential for large and long-tailed losses are negative for the company's business profile.
Fitch assessment of Asia Life's capital strength, as measured by our Prism factor-based capital model (FBM), was 'Somewhat Weak' at end-2016.
Our assessment of available capital benefitted from robust profit generation, offsetting considerable dividend outflows. From a regulatory capital perspective, the company is in compliance with solvency requirements with a solvency margin ratio of 164% at end-2016 and 165% at end-6M17 (2015: 161%).
Asia Life has paid out significant dividends over the past two years. The dividend payout ratio, calculated as dividends paid out divided by net profit of the prior year, rose in 6M17 to 77% of the net profit generated in 2016, from 58% in 2015. The company has indicated that the future dividend payout ratio would range between 55% and 80%.
Fitch views the company's financial performance as a rating strength. Asia Life reported net profit of KZT410 million in 2016 and of KZT781 million in 2015. The 2016 net result was supported by robust investment returns, which helped offset negative underwriting results. In 6M17 Asia Life's net loss of KZT27 million was mainly caused by the seasonal absence of large contract renewals over the semester. Asia Life's business plan projects a return on equity of 10% in 2017 and 13% in 2018, based on an expected average premium growth of 15% in 2017 and 19% in 2018. The company expects investment returns to offset negative underwriting results. Asia Life's growth plan is likely to reduce the company's solvency margin to around 130% at end-2017.
Asia Life's ratings could be upgraded as the company's track record develops, as evidenced by steadily improving profitability and maintenance of capital strength. The ratings could be downgraded if the insurer's capital position weakens or financial performance deteriorates.