Tashkent, Uzbekistan (UzDaily.com) – Moody’s Investors Service ("Moody’s") has assigned B2 insurance financial strength ratings (IFSRs) to Euroasia Insurance JV LLC (EAI). The outlook is stable.

Based in Uzbekistan (B1 stable), EAI is a top five property and casualty insurer, underwriting commercial and personal lines products.

The B2 IFSRs of EAI reflect its: (i) strong market position and brand, as the fifth largest player in Uzbekistan insurance market, with around 8% market share in terms of gross premium written in 2020[1]; (ii) good profitability in recent years, with a return on average capital (ROC) of 54% in 2019 and 13% in 2018, supported by a good combined ratio (COR) of 71% and 82.6% respectively; and (iii) low reserve adequacy risk, reflecting the predominance of short tail business in EAI’s business mix. However, these strengths are offset by (i) the group’s concentration in a single small economy and potentially volatile operating environment; (ii) its high exposure to non-investment grade assets; and (iii) limited capital buffer relative to its insurance risk, which include some sizeable commercial insurance exposures.

EAI is the fifth largest property and casualty insurer in Uzbekistan, which is a small, but rapidly growing insurance market. EAI underwrites property, motor, credit and various other commercial and personal lines products, including life insurance through its subsidiary Euroasia Life, which was established in 2018.

The insurer’s diversification is constrained by its limited geographical and products diversification with some sizeable exposure to commercial risks, which increases the risk of volatility in its profitability. This risk is partly mitigated by its reinsurance programs that reduce potential losses.

EAI’s asset-quality metrics reflect a high concentration of its investments in domestic assets, which comprise mainly current accounts and deposits at B1-rated government owned local banks. Moody’s estimated that EAI’s exposure to local banks accounted for around 60% of its total assets or over 800% of its equity as of 30 September 2020. The rating agency does not expect the level of high-risk assets to materially change as the company will likely preserve the quality and composition of its investment portfolio.

The insurer’s capital buffer has materially decreased in 2019 because of a large dividend distribution and was replenished in 2020 as a result of new capital injection. Moody’s expects that EAI will further strengthen its capitalization in the next 12-18 months to support business growth and comply with increased regulatory requirements.

The assignment of new ratings to EAI also takes into account its governance as part of Moody’s environmental, social and governance (ESG) considerations. Moody’s does not have any particular governance concerns for EAI.

The stable rating outlook reflects Moody’s expectation that EAI will maintain good profitability relative to peers and its capital position will gradually improve while asset quality will remain broadly stable.

Moody’s could upgrade the insurer’s ratings if (1) its capital position materially strengthens; (2) it improves business diversification towards lines with granular exposure; (3) it demonstrates track record of profitable performance and good understanding of the large commercial underwriting exposures. Material improvement in Uzbekistan’s operating environment could also result in a positive rating action.

Conversely, downward pressure would arise if its: (i) profitability significantly deteriorates, (ii) capital and/or asset quality deteriorates, with the average credit quality of EAI’s investments in bank deposits deteriorates to below the B1-rating category (iii) rapid business growth leading to higher risk.