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Fitch Raises NOMAD’s Insurance Financial Strength Rating

Friday 20 July 2012

(Fitch, Caryn Trokie of New York Ratings Unit) – Fitch Ratings has upgraded JBC Insurance Company NOMAD Insurance (Kazakhstan)’s (NOMAD) Insurer Financial Strength (IFS) rating to “B” from “B-“ and National IFS rating to “BB+(kaz)” from “BB-(kaz)”. The Outlooks are Stable.

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JSC Nomad Insurance Insurance Company was founded in January 2004. The shareholder of the Company is Mr. A.S. Mynbayev, who holds 100 % of shares. The company provides all categories of legal entities and individual with a wide range of insurance solutions, as well as it transfers and take reinsurance risks of the Kazakhstani and foreign insurance companies.

The upgrades reflect NOMAD’s good track record of profitability, adequate risk-adjusted capitalization and good market position in the Kazakh insurance market. NOMAD has historically reported positive underwriting profitability with the average combined ratio at 62.6% in 2006-2011 and the loss ratio averaging 17.4% in the same period.

Fitch expects NOMAD will continue to underwrite profitable business in a context of high premium growth. Offsetting these positive rating factors, individual large accounts have represented a significant part of NOMAD’s income and profits since 2009, and Fitch expects this to continue. Large accounts have tended to produce earnings of moderate quality and expose the company to concentration risk. In Fitch’s view, this risk is detrimental to NOMAD’s overall credit quality.

NOMAD’s regular insurance portfolio is concentrated in compulsory motor third-party liability (MTPL; 43% of GWP in 5M12). This exposure could negatively impact NOMAD if compulsory MTPL tariffs are liberalised or adjusted from their current high level.

NOMAD’s quality of investments is relatively poor, with significant holdings of sub-investment-grade debt, albeit this is a common feature for insurers in Kazakhstan. The level of diversification is also low with 59.3% of assets concentrated with Kazakh banking groups. However, the liquidity profile of these investments is satisfactory.

Fitch’s calculated risk-adjusted capital indicates that NOMAD is adequately capitalised for its rating level. However, the agency notes the deterioration of capitalization in 2011, as a result of rapid business growth and dividends paid. Nonetheless, the agency expects the solvency margin will remain above the minimum regulatory threshold of 100% in 2012 (May 2012: 172%), despite the strong growth NOMAD intends to achieve.

Fitch believes NOMAD’s private ownership is negative for the ratings. This follows the significant dividends paid by the company in 2011 and 5M12 as well as uncertainty over the extent to which NOMAD’s shareholder will have to support the growth of a recently acquired life insurance company. Triggers for a downgrade would include a material deterioration of NOMAD’s risk-adjusted capital or a fall in the statutory solvency margin below 100%, any indication that the shareholder is not willing or able to support NOMAD or a material deterioration in the credit quality of NOMAD’s investments.

The ratings could be upgraded if NOMAD becomes less dependent on MTPL and reduces the credit risk that it is exposed to through various fronting agreements. If NOMAD proves its ability to sustainably grow the business without external support from its shareholder, the ratings could also be upgraded.

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