Tashkent, Uzbekistan (UzDaily.com) -- Fitch Ratings has assigned Uzbekistan-based Joint Stock Company Insurance Organization INSON (INSON) an Insurer Financial Strength (IFS) Rating of ‘B’. The Outlook is Stable.

The rating reflects reflect the insurer’s moderate business profile, weak capitalisation, profitability supportive of the rating, and high, albeit commensurate with the rating category, investment risk.

Moderate Business Profile: Fitch ranks INSON’s business profile as ‘Moderate’ compared with other Uzbek non-life insurers. This is mainly due to its moderate diversification and competitive positioning, and less favourable business risk profile. INSON is a medium-sized non-life insurance company with an adequate business franchise and limited competitive advantages. INSON is the 12th-largest Uzbek non-life insurer by gross premiums, with a market share of 2% of gross written premiums in 1H23.

Exposed to Financial Risks: INSON’s business mix is heavily skewed towards financial risk insurance. Financial risks accounted for 40% of net written premiums in 2022, with around half of these policies representing credit default insurance of unsecured retail loans. This could be a source of volatility and uncertainty for the insurer’s underwriting profitability.

Weak Capitalisation: The insurer’s capital position, as measured by Fitch’s Factor-Based Capital Model, was below ‘Somewhat Weak’ at end-2022. The target capital remained high due to high asset risks stemming from the investment portfolio. Moreover, the insurer’s capital could be exposed to unmodelled potential large losses owing to the absence of catastrophe protection. We expect the company’s capital position to remain under pressure due to its aggressive growth strategy.

Inson’s regulatory solvency margin strengthened to 131% at end-3Q23 from a fairly low level of 107% at end-2022, with the improvement mainly due to the capital injection. The company plans to capitalise profits in 2024-2025 and not distribute any dividends.

Profitability Supportive of Rating: The company reported net income of UZS5 billion and UZS536 million in 2022 and 2021, respectively, which resulted in return on equity of 15% and of 2.4%. The net result was driven by a strong investment component, which is evidenced by investment yields of 13% and 9% in 2022 and in 2021, respectively. This offset the negative underwriting result, with the insurer’s combined ratio of 103% and 110% in 2022 and 2021, respectively, with burdensome expenses being the drag.

In 9M23, the company’s financial performance was positive, as shown by net profit of UZS1.7 billion based on local GAAP reporting, supported by a historically high investment result.

High Investment Risk: Fitch views INSON’s investment and asset risk as high albeit commensurate with the rating category. The insurer is exposed to equity investments in affiliates, which totaled 88% of shareholders’ equity. The rest of the insurer’s investment portfolio is placed in bank deposits in a large number of state-owned and large private banks rated in the ‘B’ rating category.

Natural Catastrophe Risk Not Modelled: Like its local peers, INSON is exposed to high catastrophe risk as Uzbekistan is in a seismically active area. The insurer does not have sufficient catastrophe cover and does not conduct internal assessments of the possible maximum exposure on its insurance book.