ru kz en

Life Insurance Comes to the Front - S&P

The main growth factor for Kazakhstani insurance market in future will be the growth of life insurance sector, analysts of the international rating agency S&P Global Ratings say.
Life Insurance Comes to the Front - S&P

“We expect low growth rates in the general insurance segment (about 5% in real terms in 2020), which will largely depend on the level of competition, purchasing power and inflation,” the S&P insurance sector survey said, Interfax-Kazakhstan writes.

“Taking into account the forecasted low growth rates in the general insurance sector, we believe that the main growth factor of the insurance market in future will be the life insurance sector growth, however, both of these sectors are able to demonstrate high rates of return on equity and profitability,” the information says.

According to S&P analysts, the difficult operating environment in Kazakhstan puts pressure on development of both the life insurance sector and general insurance sector.

“Real welfare measures in Kazakhstan remain low: GDP per capita by the end of 2019 was around $8,600. We note that country’s population spends mainly on essential supplies, and therefore, does not always acquire adequate insurance coverage or does not acquire insurance policies at all (with the exception of compulsory insurance policies). This factor, as well as a low level of payment culture and financial literacy, determine the low level of insurance costs (an average of $70 per capita) and hamper the development of both the life insurance and general insurance sectors,” the review says.

In general, as noted in the information, the growth prospects of the insurance sector remain favorable. “We expect the sustainable economic growth rates in Kazakhstan in real terms will be kept (according to our estimates, average is about 3.6% in 2020-2022), however, the level of penetration of insurance services in Kazakhstan, in our opinion, will remain low in comparison with similar indicators in developed countries,” the review notes.

S&P analysts expect the regulatory initiatives to stimulate the life insurance sector development in the medium term with growth rates of over 20%. According to information, “these initiatives include the expected introduction of insurance products with an investment component and possible measures by the regulator to transfer part of pension management functions to life insurance companies.”  

According to the agency, insurance companies with S&P ratings accounted for almost 50% of net insurance premium as of end of 2019. “We expect the majority of Kazakhstani companies rated by us (JSC IC Eurasia, JSC Nomad Life, JSC IC Nomad Insurance, JSC IC London-Almaty, JSC IC Jysan Garant, JSC Oil Insurance Company, JSC Grain Insurance Company, JSC IC Freedom Finance Insurance), which are engaged in general insurance and life insurance, will retain their positions despite increased competition,” the review notes.

S&P expects that competition will remain high in the corporate and retail insurance segments, and liability, property and auto insurance will account for almost 80% of the insurance premium in the general insurance market in 2020-2021. “Competition may intensify for life insurance companies, but this will not lead to significant changes in group of the major market players in the next 12-18 months. In our opinion, an increased competition will be accompanied by strict regulation of insurance companies,” the information says.

The agency noted that the regulatory body suspended several licenses and revoked a number of licenses in 2018-2019. They believe, however, "there will be few such cases in 2020-2021 and they can only affect small and weaker insurance companies."

In general, S&P expects that the combined ratio of companies in the general insurance sector will be about 95%, and the sector's profitability indicators will remain high: return on equity (ROE) will be about 15-20%. “We anticipate the average ROE in the life insurance sector will be over 25% a year in 2020-2021, and return on assets (ROA) for the same period will be about 6%, which we estimate as a very high index compared to the indicators of European life insurance companies,” the report says. The agency believes that investment income will account for a significant share in the final results of all Kazakhstani insurance companies, despite a decrease in the average net investment return to 6.8% in the past two years. Besides, S&P predicts the volatility of insurance performance in the future for companies in the general insurance sector, "however, these indices will continue to positively affect our assessment of life insurance companies."

According to the information, the S&P overall assessment of risk exposure is negative for most Kazakhstani insurance companies rated by S&P Global Ratings. “Risk exposure associated with the country's banking sector continues to put pressure on the quality indicators of insurance companies' assets. The funds are placed in Kazakhstan banks with a median rating of "B", which is a low indicator in the international context," the review notes.

Besides, the agency notes that most rated Kazakhstani insurance companies are subject to a fairly high foreign exchange risk.


Photos are from open sources.

read also
Inflation has been accelerating for the second month in a row
Inflation has been accelerating for the second month in a row

In February, the consumer inflation rates have continued to accelerate for the second...

How much does it cost to send a child to school?
How much does it cost to send a child to school?

Just before the school shopping season, the editors of calculated how much...

The most interesting materials of the site you have in the mail! Subscribe to the newsletter.

Submit your application