OREANDA-NEWS. June 24, 2011. Fitch Ratings has downgraded AMANAT Insurance's (AMANAT) Insurer Financial Strength (IFS) Rating  to 'B-' from 'B' and National IFS Rating to 'Bplus(kaz)' from 'BB(kaz)'. The  Outlook is Negative. The downgrade reflects the weakening of AMANAT's regulatory capital position to marginal levels and the significant delay in completing the announced capital increase by KZT360m. The rating action also takes into account the deterioration of the insurer's underwriting performance in 2011. The ratings are supported by the insurer's risk-adjusted capital position commensurate with the rating level and its relatively good liquidity position. If any non-compliance by the insurer with regulatory prudential requirements were followed by external regulatory intervention, Fitch would view these events as a key trigger for a downgrade. Alternatively, reduction of the regulatory  risk and signs of the improving underwriting performance could result in  positive rating actions.

AMANAT was close to the minimum required level of solvency margin of 100% at end-4M11 and end-5M11 due to pressure on available and required capital, both components of the solvency ratio. AMANAT's required capital grew in 2011 because  the regulator increased the minimum guarantee fund, a fixed sum. Pressure on  available capital was triggered by changes in the reserving methodology by the  regulator which came into force in 2011. AMANAT expected its shareholder to inject an additional KZT360m in Q410 to support the company's regulatory capital position. The injection has not,  however, been completed due to the long drawn out transfer of the ownership of the insurer from the technical holding vehicles directly to the beneficiary shareholder. The formalities related to the ownership were completed by April 2011, but the shareholder has delayed the capital increase to end-2011. The deterioration of the insurer's underwriting performance to date in 2011 was caused by increased allocations to loss reserves which at end-Q111 strengthened  by a net 83%, with 78% represented by an increase in the incurred but not  reported loss reserve. In Q211, AMANAT's technical result was adversely affected  by larger losses in a number of business lines. Fitch is concerned about the  sustainability of AMANAT's negative operating cash flow, which was explained by  the restructuring of the portfolio in 2009-H110, but now appears to signal that  underwriting activity is recovering more slowly than had been expected. At the  same time, Fitch notes that the insurer still has a relatively good liquidity  position with net technical reserves covered by relatively liquid, local  investment assets. AMANAT is a medium-sized Kazakh non-life insurer with gross premiums written of KZT5bn in FY10 and gross assets of KZT4bn at end-2010. The performance of the insurer was adversely affected by changes in the ownership structure and management team in Q109.