The agency notes that, despite the unfavorable macroeconomic situation and conditions in the financial market during the first seven months of 2022, the operating performance of LIC Freedom Finance Life (hereinafter referred to as FFL), according to reports, turned out to be higher than the average market level. According to the financial statements as of August 1, 2022, the return on equity (ROE) of FFL was 47.4%, and the return on assets (ROA) was 6.3% in annual terms, while the sector averages for the same period were about 35.2% and 6.0% respectively. The agency expects the FFL’s net income to average around KZT5-6bn per annum with an ROE ratio of 32% and an ROA ratio of 5-6%.
“We believe that FFL will continue to expand its position in the Kazakhstani insurance market by maintaining growth rates and profitability at a level higher than the average for domestic and foreign peers. We would also like to note that FFL's actions on improving the structure of the insurance portfolio lead to the company's capitalization increase,” the S&P Global Ratings report says.
The Stable outlook reflects expectations that over the next 12 months, FFL will continue to generate strong profits and expand its market presence, while maintaining sufficient capitalization.
Thanks to the company's efforts to change the structure of the insurance portfolio during the first seven months, as of August 1, 2022, life insurance products accounted for up to 26% of the company's total premium compared to 8% at the end of 2021, annuity insurance formed 44% (62% at the end of 2021), the remaining 30% were mainly related to employers' liability insurance. The lower level of insurance risk is expected to help improve FFL capital performance over the next two years. In addition, profit retention is likely to continue to drive capital growth, which will further strengthen the company's capitalization.
“We believe that the management regime in Kazakhstan still excludes the fund outflow from FFL to support the parent holding, Freedom Group, for example in the form of dividend payments or large investments. Thus, we continue to believe that FFL is a stand-alone subsidiary and that its rating can be two notches higher than the parent's,” S&P Global Ratings informed.
The agency also notes the important role of LIC Freedom Life in the implementation of the group's long-term business development strategy, which involves its diversification within the holding.
“Our company continues to strengthen its already strong market position in 2022. There is an increase in profitability indicators that exceed the market average. Freedom Life specialists have developed more than 25 online and offline life insurance programs for 4 years. The company has provided insurance coverage to more than 491,000 Kazakhstanis by this moment. Thanks to new digital technologies, we are improving the insurance service, making it not only convenient but also lucrative for the company's customers,” said Azamat Yerdessov, the Board Chairman of LIC Freedom Life.
Photos are from open sources.
