Uzbekinvest is 100% owned by the Republic of Uzbekistan (83.3% via direct shareholding and 16.7% through the National Bank of Uzbekistan (B2, stable/NP, BCA: b2)). Uzbekinvest is the main insurance operating entity of the Uzbekinvest group, and the parent company of (i) the UK-based political risk underwriter, Uzbekinvest International Insurance Company Ltd (UIIC); and (ii) the group’s life insurance company, Uzbekinvest Hayot.

Uzbekinvest was established by the government to assist in the stimulation of foreign investments into the economy and growth of exports through the provision of reliable insurance protection against political, natural and combined risks. Uzbekinvest is also tasked with educating the public of the benefits of insurance and providing capacity in the market.

The upgrade of Uzbekinvest’s IFSR to Ba3 is underpinned by the country’s persistently strong economic growth, which continues to be less volatile than in some other Commonwealth of Independent States countries, as the government re-channels a significant portion of its revenues into the economy through various budgetary spending mechanisms. GDP per capita (in purchasing-power-parity terms) has risen steadily to $5,609 in 2014 from $1,862 in 1999. Although remittances from Russia, which comprised 9% of GDP in 2014, will decline significantly in USD terms over the outlook horizon, Moody’s still expect official economic growth to average 6.3% in 2015-16, supported by large government infrastructure projects and other initiatives. The IMF also estimates Uzbekistan’s current-account balance in 2014 remains at a surplus, albeit reduced, of $73 million (0.12% of GDP).

The upgrade is also supported by the (i) strong growth in total group gross written premiums, which increased by 49% over the last three years to 67 billion soums (US$28 million); and (ii) continued business diversification, particularly into life insurance, which accounted for 38% of total 2014 net premiums from 14% in 2013. Furthermore, the group’s growing underwriting portfolio continues to be extremely well capitalised, as reflected in the shareholders’ equity as a percentage of total assets, which remains consistently above 70%.

Other key credit strengths are: (i) the group’s strong position in domestic insurance; (ii) its ownership by the State and the State guarantee of export-credit risks provides it with a competitive advantage; and (iii) good asset quality with almost half of the group’s overall capital invested in high quality US denominated fixed income securities in its UK operation, UIIC. UIIC underwrites political risk from the UK through a managing general agency jointly owned by the American International Group, Inc. (AIG Group, Baa1 Stable LT Issuer Rating). In Moody’s view, the presence of these assets outside of Uzbekistan is an important credit strength. Although the overall asset quality of the group has slightly deteriorated with high risk assets increasing to 64.8% of shareholders’ equity at YE2014 from 54.1% at YE2012, the relative size and quality of UIIC’s asset portfolio remains supportive of the Ba3 rating level.

Credit challenges include the group’s concentration in a single and small economy and weak profitability. Underwriting results have been, and will likely remain, volatile driven by low granularity in the insured book, a high expense ratio and the developing nature of the Uzbek insurance market.

“The stable outlook underpins our expectation that the group will maintain very strong capitalisation levels relative to insurance risk without a material decline in the size and/or quality of assets held within its UIIC investment portfolio,” Moody’s said.

The stable outlook also reflects the stability of Uzbekistan’s macroeconomic environment, which is relatively diversified. The outlook on Uzbekinvest is also consistent with the stable outlook on the Uzbek banking system, to which the company has a significant exposure via its local investments portfolio.

Moody’s added that further upward rating pressure may arise from continued improvements in the local economic, regulatory and legal environment.