1 February 2016 Insurance

AM Best places FSR of Standard under review

AM Best has placed under review with negative implications the financial strength rating of B- (Fair) of Standard Insurance Company, JSC (Standard) (Kazakhstan), provider of life and health, motor vehicle, fire, and liability insurance products.

The rating action follows the announcement on 21 January 2016 of Standard’s intention to acquire the insurance portfolio of Alliance Polis Insurance Company, JSC (Alliance Polis) (Kazakhstan). Alliance Polis is a non-life company operating in the Kazakhstan market.

AM Best said it understands that an unspecified quantity of Alliance Polis’ insurance portfolio will be transferred to Standard, subject to receiving policyholders’ consent.

The rating firm is currently in the process of reviewing the impact of this transaction on the rating fundamentals of Standard, as it gathers the necessary information available to support the review.

Based on regulatory statistics for the year to November 2015, Alliance Polis maintains a 2.4 percent market share with gross written premiums (GWP) of KZT 6.2 billion (approximately $16.3 million) compared with GWP of KZT 4.2 billion (approximately $11 million, 1.6 percent market share) for Standard in the same period, according to AM Best.

Both companies have generated technical losses over the past several years as a result of a combination of factors, including high expense pressures due to their limited scale. Additionally, AM Best notes

the significant volatility inherent within Alliance Polis’ historical performance, with loss ratios ranging between 39 percent and 154 percent in the latest five-year period (2011-2015).

Given the material size of Alliance Polis’ insurance portfolio relative to that of Standard, as well as both companies’ performance issues, there is uncertainty regarding the adequacy of Standard’s risk-adjusted capitalisation following the completion of the transaction, according to AM Best.

The ratings of Standard will remain under review for up to six months while AM Best collates the necessary information required to assess the impact of the transaction on the company’s rating fundamentals, including the effect on risk-adjusted capitalisation, prospective earnings and business strategy.

Based on information currently available, AM Best believes that there is a reasonable likelihood that the ratings of Standard will be lowered as a result of this transaction.

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