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S&P promotes valuation

The insurance companies of the CIS countries have been operating in unprecedented conditions adjusting their business models with respect to the difficult economic situation for more than six months. Thanks to unique approaches, the sector is resistant to recession.
S&P promotes valuation

As of mid-October 2020, the S&P Global Ratings analysts changed their outlook to negative or revised their rating downward for about 17% of all rated insurance companies in the world. “It was largely due to one of several factors. These include a downgrade of the sovereign rating, low outlook for insurance activities, pressure on the competitive position and volumes of premiums of insurance companies. A small part of ratings have been revised upward or positively,” says Yekaterina Tolstova, Deputy Director of the Financial Institutions Group at S&P Global Ratings.

The interlocutor believes that these actions are related to the inherent characteristics of insurance companies, and not macroeconomic indicators: “We have considered such factors as building market strength of the company with operating performance and capital adequacy improvement and diversifying the investment portfolio into less risky financial instruments. Such rating actions were taken in the CIS countries as well. We have raised the rating of Rosgosstrakh in Russia and Nomad Life - in Kazakhstan”.

Nomad Life's long-term rating has been upgraded to 'BB+'. In addition, the Company received a national scale rating of "kzАА". The rating is Stable.

The rise in international valuation followed the rise in the organization's capital adequacy ratios. Thus, by results of eight months of this year, the company ranked first in terms of asset growth. The structure continues to show the dynamics of premiums significantly higher than the market average. In August, in annual terms, Nomad Life increases its premiums by 95%, having collected 15.7 billion tenge. At the end of eight months of 2020, the share of Nomad Life in total life insurance premiums has grown to 30%.

“The upgrade of ratings of JSC LIC Nomad Life reflects a significant improvement in capital adequacy ratios ensuring further business growth and adequate liquidity cushion in the event of deteriorating operating conditions or unexpected large losses. Besides, we would like to note that the company's management is committed to pursuing a balanced asset allocation policy, which is aimed at investing in assets with an average credit quality of at least BBB level. This has led to improvement in liquidity indices, a gradual decrease in investment portfolio risks over the past two years and improvement in the quality of investments,” notes Yekaterina Tolstova.

According to Nomad Life, the main principles of the organization's investment policy are liquidity, safeguard and profitability, therefore investment decisions are made with reference to the risk analysis of the financial instrument issuer, macroeconomic environment and diversification of assets by issuer, industry, and country.

“The Company invests most of its assets in government-issued instruments, government-related entities and international securities with a high credit rating today,” notes Kairat Chegebayev, the Board Chairman of JSC LIC Nomad Life.

Thus, more than 45% of the organization's tenge portfolio is invested in the instruments of the Ministry of Finance of the Republic of Kazakhstan. “Undoubtedly, an active presence of LICs in the securities market is very beneficial for the state. Financing of long-term government projects and issuers of the quasi-state and private sectors is possible thanks to such investments,” reminds Kairat Chegebayev.

New Product

The favorable market positions, long-term presence in the market, a significant distribution network and well-recognized brand play into the hands of Nomad Life. Thus, the company's market share in terms of gross insurance premiums signed is 30%. In addition, S&P Global Ratings noted Nomad Life's desire to expand its product line and introduce investment insurance unit-linked. “In our opinion, the introduction of insurance with an investment component (unit-linked products) will not lead to an immediate increase in insurance premiums but will have a positive impact on this index in the medium term. We see that an additional factor for life insurance companies may be the transfer of people’s assets to life insurance products rather than bank deposits, due to the higher investment return of such instruments. This is especially applicable to insurance products denominated in US dollars,” predicts the Deputy Director of the Financial Institutions Group of S&P Global Ratings.

Nomad Life is now offering the client a choice of several investment portfolios, consisting of assets managed by global management companies with a worldwide reputation BlackRock, State Street Advisor, and Invesco.


“We expect an increased competition in the future, but this will not lead to significant changes in the group of major players in the life insurance sector in the next 12 months, - says Yekaterina Tolstova. – Besides, we believe that the management regime is driving the industry forward. We forecast that the sector of life insurance will perform better than general insurance: the average ROE in the life insurance sector will be around 20% per annum in 2020, and return on assets (ROA) over the same period - about 4%".

S&P believes that the situation for life insurance companies is more favorable than for general insurance companies.

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