Eurasia Life Assigned 'BBB-' And 'kzAAA' Ratings On Parental Support And Solid Capital Adequacy; Outlook Stable
- We consider Eurasia Life to be a highly strategic subsidiary of Eurasia Insurance (BBB/Stable/--), due to the group's strong, long-term commitment of support to its subsidiary, and the two entities' strategic integration.
- In our view, Eurasia Life has quickly established its competitive position in the Kazakhstan life insurance market since its foundation in 2019, and benefits from robust capital adequacy.
- We are assigning our 'BBB-' issuer credit and financial strength ratings and 'kzAAA' Kazakhstan national scale rating to Eurasia Life.
- The stable outlook reflects the stable outlook on Eurasia Insurance.
MOSCOW (S&P Global Ratings) Nov. 2, 2020--S&P Global Ratings today assigned its 'BBB-' issuer credit and financial strength ratings to Eurasia Life. The outlook is stable.
At the same time, we assigned our 'kzAAA' Kazakhstan national scale rating to the insurer.
Founded by Eurasia Insurance, Eurasia Life commenced operations in March 2019. We consider Eurasia Life to be a highly strategic subsidiary of Eurasia Insurance, owing to its targeted key role in pursuing the group's expansion in the life insurance sector in Kazakhstan. Eurasia Life was set up with very solid capital adequacy provided by its parent; a sound liquidity position; and an investment strategy focused on domestic government bonds. At the same time, the lack of a proven business and earnings track record, and the company's modest absolute capital size compared with international peers' offsets these factors.
Our view of the subsidiary's highly strategic status is based on Eurasia Life's role within the group. In our view Eurasia Insurance has a strong, long-term commitment of support to Eurasia Life, which received a capital injection of Kazakhstani tenge (KZT) 3.6 billion (about $8 million) in 2020 on top of the capital contribution in 2019 (KZT5.4 billion) to support business growth. In our view, Eurasia Life has close operational, strategic, and financial integration with the rest of the group. We recognize the brand and expertise of Eurasia Insurance as a good platform for the life company to build its third-party life business. We note that currently close to one-third of the business comes from Eurasia Insurance, which relates to employers' liability products. However, as the company expands its business to annuities and life products, we expect the share of Eurasia Insurance as a distribution channel to reduce.
In our view, Eurasia Life has a modest, though gradually strengthening, competitive position in the domestic life insurance market. With gross written premiums of KZT15.1 billion for the first nine months of 2020, Eurasia Life is the third-largest life player in Kazakhstan in the country. We expect it to report high operating performance, with a return on equity of 19%-20% and return on revenue of 12%-16% over the next two years, despite elevated competition on the life insurance market and still-challenging operating conditions in Kazakhstan. We forecast that Eurasia Life will show growth of about 20% growth in 2021 and close to 10% in 2022, which will be in line with the market average expectations. This stems from the continual development of the nascent Kazakhstan life insurance sector.
We assess Eurasia Life's capital adequacy as sufficient to support its current and projected business volumes. In our forecast, we assume no dividend payouts in the next two years. We believe that the shareholder is committed to support the company's growth with fresh capital if needed.
Eurasia Life has adopted an investment strategy that is focused on cash, government-related entity or government bonds of 'BBB' credit quality, and deposits, which is generally the highest credit quality available in domestic currency. This supports our view of the company's modest risk tolerance. Eurasia Life has limited exposure to high-risk assets and no foreign-exchange exposure because all of its assets and liabilities are denominated in Kazakhstani tenge. This allows Eurasia Life to create a sufficient liquidity cushion to meet its future insurance obligations.
The stable outlook on Eurasia Life reflects that on Eurasia Insurance. The ratings on Eurasia Life are likely to move in tandem with those on Eurasia Insurance, unless we revise our view of Eurasia Life's group status.
We could take a negative rating action in the next 12 months on Eurasia Life if we see pressure on the rating on Eurasia Insurance or a sovereign rating. Although not expected, we could also take a negative rating action on Eurasia Life if we saw diminishing support from Eurasia Insurance to its subsidiary, particularly in respect of capital support. This could weaken our view on the company's group status.
A positive rating action could follow a positive rating action on Eurasia Insurance, which we view as unlikely over the next 12 months. This is owing to Eurasia Insurance's lack of scale relative to higher-rated peers, and the material exposure of its insurance and investment portfolios to the domestic market.
Related Criteria
- Criteria | Insurance | General: Insurers Rating Methodology, July 1, 2019
- General Criteria: Group Rating Methodology, July 1, 2019
- General Criteria: Methodology For National And Regional Scale Credit Ratings, June 25, 2018
- General Criteria: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
- Criteria | Insurance | General: Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
Related Research
- Kazakhstan-Based Eurasia Insurance's Ratings Affirmed At 'BBB' Despite Challenging Environment, June 9, 2020
- COVID-19's Economic Consequences Will Test Kazakhstan Insurers' Resilience More Than Underwriting Exposure, June 4, 2020
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| Primary Credit Analyst: | Ekaterina Tolstova, Moscow (7) 495-783-41-18; ekaterina.tolstova@spglobal.com |
| Secondary Contact: | Ekaterina Marushkevich, CFA, Moscow (7) 495-783-41-35; ekaterina.marushkevich@spglobal.com |
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