OREANDA-NEWS. Fitch Ratings says that bancassurance has been the key driver of growth in the Kazakh insurance sector in recent years. Prospects for sustained profitability of the bancassurance model will depend on the quality of regulation and further growth in consumer lending.

The Kazakh bancassurance model generates strong profitability for insurers through a low loss ratio. However, Fitch's analysis indicates that bancassurance profits are increasingly repatriated to shareholders rather than being retained within the Kazakh insurance sector.

Profitability of the insurance sector has been strong since at least 2008, with both underwriting profit and investment return contributing to the sector's net profit. The underwriting result is significantly concentrated among a few of the largest players in the sector and is driven by a fairly low loss ratio. In Fitch's view this reflects a limited level of competition in the Kazakh insurance sector and significant related party operations both in bancassurance and commercial non-life insurance.

Fitch believes that Kazakh underwriters of employers' liability risks are exposed to significant reserving risk. This risk is not fully captured on the balance sheets of Kazakh insurers and reflects the increased registration of disability, to some extent due to mala fide practice, modest quality of pre-underwriting surveys, and the line's long-tail nature. At present the government is considering transferring of some part of the liabilities to the social security system, which could cut the insurers' average claim size substantially.