OREANDA-NEWS. Fitch Ratings has revised Kazakhstan-based Kompetenz Joint Stock Company's (Kompetenz) Outlooks to Stable from Negative and affirmed its Insurer Financial Strength (IFS) rating at 'B' and National IFS rating at 'BB(kaz)'.

The revision of the Outlooks reflects a moderate narrowing of Kompetenz's net losses, a slowdown in adverse reserve development for workers' compensation and renewed business growth. The ratings continue to reflect the insurer's fairly strong capital position, and its more conservative investment strategy than local peers. However, these positive rating drivers are offset by the company's limited financial flexibility and a business strategy that Fitch believes is challenging to execute.

Kompetenz managed to achieve a moderate improvement in its operating performance with a smaller net loss of KZT86m for 9M14, compared with a KZT174m net loss in 9M13 (2013: net loss of KZT186m). This improvement was mainly driven by a stronger investment result and, to a lesser extent, by a smaller underwriting loss. The latter was due to a slowdown in loss reserves development for workers' compensation, changes in the regulatory reserving methodology and a significant volume of subrogation income.

Fitch continues to see the operating environment as a difficult one in which to execute Kompetenz's growth strategy. This is because the company has neither an affiliation with a large local industrial group nor exclusive access to bancassurance distribution channels, both being common business models for insurers in Kazakhstan.

Fitch view Kompetenz's risk-adjusted capital position as fairly strong for the ratings. This is mainly explained by the low volumes of net premiums, relative to its equity. Kompetenz's risk-adjusted capitalisation also benefits from the credit quality of its fixed-income investment portfolio, which is better than that of its local peers. At the same time, Fitch also believes that Kompetenz's financial flexibility is limited, as it is the main operating company of an individual shareholder. In addition, Kompetenz's regulatory solvency margin has experienced some volatility from month to month due to large single contracts, although the company has remained compliant so far in 2014 (end-9M14: 119%).

RATING SENSITIVITIES
The ratings could be downgraded if Kompetenz's risk-adjusted capital strength is significantly eroded by the continuing losses or rapid growth of net business volumes. The ratings could also be downgraded if the insurer's statutory solvency margin falls below 100% for a sustained period.

An upgrade could be triggered by a sustained improvement in the net result to positive levels and diversified premium growth, although Fitch views this as unlikely in the near term.