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from Stable, affirmed its Insurer Financial Strength (IFS) rating at 'B' and National IFS rating at 'BB(kaz)' and withdrawn the ratings.

KEY RATING DRIVERS
Fitch has chosen to withdraw the ratings of Kompetenz for commercial reasons. The agency will no longer provide ratings or analytical coverage of the company.

The revision of the Outlook to Negative reflects a sharp deterioration in Kompetenz's underwriting profitability in 4Q15 and heightened risk of capital depletion and non-compliance with the regulatory solvency margin.

Based on unaudited 2015 reporting, the insurer's underwriting technical result worsened to a negative KZT1.3bn at end-2015 from a negative KZT0.3bn at end-9M15. FX gains on investments of KZT0.9bn helped Kompetenz to reduce capital depletion, leading the insurer to report a modest net loss of KZT0.2bn in 2015.

The combined ratio deteriorated to 167.9% at end-2015 from 100.9% at end-9M15. This was mainly driven by a significantly worsened loss ratio of compulsory motor third party liability insurance and the line's rapid growth in the insurer's portfolio. The other reason was continuing adverse loss reserve development of the workers compensation line (which is in run-off). The expense ratio of 59% in 2015 (9M15: 46.2%) weighed on the combined ratio and remained burdensome for the company despite robust business growth.

Kompetenz managed to improve performance in 2M16 with a net income of KZT0.1bn. This improvement was, to a large extent, supported by a KZT0.3bn IBNR reserve release for the compulsory MTPL line. However, it is at present difficult to assess the sustainability of the performance improvement and the adequacy of the insurer's reserves after the release.

According to Fitch's Prism factor-based capital model, Kompetenz's risk-adjusted capital score was below 'somewhat weak' based on 2015 results. The regulatory solvency position stood at 110% at end-February 2016, slightly above the regulatory minimum of 100%. Fitch views Kompetenz's financial flexibility as low because the insurer is owned by a single individual shareholder and remains the only operating asset of this shareholder.