INSURANCE SECTOR OF THE REPUBLIC OF KAZAKHSTAN...

INSURANCE SECTOR OF THE REPUBLIC OF KAZAKHSTAN

INSURANCE SECTOR OF THE REPUBLIC OF KAZAKHSTAN Analytical department of Rating agency of RFCA: Anel Utembayeva

Rating agency of the Regional

financial center of Almaty JSC

136, Dostyk avenue,

office 9, floor 9

050051 Almaty, Republic of Kazakhstan

Tel: (727) 224 48 41,

224 48 44

Fax: (727) 330 23 03

[email protected] http://www.rfcaratings.kz

Almaty 2015


TABLE OF CONTENTS Resume

Section 1. Review of key macroeconomic indicators of the Republic of Kazakhstan

1.1 Key macroeconomic indicators of the Republic of Kazakhstan for 8M2015

1.2 Dynamics of the economy's sectors

1.3 Key indicators of the insurance sector

Section 2. Structure of the insurance market of the Republic of Kazakhstan

2.1 Institutional structure

Section 3. Assets, equity and insurance reserves

3.1 Equity

3.2 Assets

3.3 Liabilities

3.4 Insurance reserves

Section 4. Concentration of insurance sector of Kazakhstan

4.1 Insurance premiums inflow

4.2 Life insurance sector

4.3 General insurance sector

4.4 Insurance claims

Section 5. Reinsurance

Section 6. Government regulation

Section 7. Forecast

2


REVIEW OF THE INSURANCE SECTOR OF KAZAKHSTAN AS OF 01/09/2015

Resume

Evaluating the current situation in the insurance sector of Kazakhstan, as a whole, there are positive results demonstrated by the growth of assets and equity of insurance companies, legal system of compulsory insurance is improved, stress-testing and early warning tests are imposed in order to strengthen the state control.

As of 01/09/2015 Kazakhstan insurance companies collected premiums amount to KZT 200.4 bln., which is 6.6% more than premiums over the same period of 2014. It includes insurance premiums collected on compulsory insurance – KZT 49.8 bln., (7% increase versus 01/09/2014), premiums on voluntary personal insurance – KZT 54.7 bln. (1.9% increase), premiums on voluntary property insurance – KZT 95.7 bln. (9.3% increase). Total insurance premiums, collected in «general insurance» sector, exceeded KZT 150.9 bln., which is 4.8% increase versus the same period of 2014.

In 2015 there is a positive trend in premiums on such insurance types as compulsory insurance of third party liability of motor vehicle owners, premiums of which amount to KZT 26,3 bln., 16.8% increase; insurance premiums in medical insurance amount to KZT 18.1 bln., 7.4% increase; insurance premiums in property insurance amount to KZT 47.3 bln., 15.5% increase; insurance premiums in cargo insurance amount to KZT 4.1 bln., 45.1% increase; insurance premiums in voluntary insurance of third party liability amount to KZT 16.6 bln., 22.6% increase. The premiums in motor vehicle insurance, which amounted to KZT 10.7 bln., decreased by 3.2% in comparison with the previous year.

However, the insurance market is showing a steady growth, and this trend is forecasted for 2015 too. At the same time, we can observe an offset towards the retail business, which creates balance for insurance companies to be more stable in the market. Since the Kazakh market today is characterized by limitation in terms of affiliation and the low development of voluntary insurance, this offset will have a positive impact on market and will increase competition among participants. The adoption of new legislative measures will give a new impetus to a further development of the insurance market.

3


Section 1. Review of key macroeconomic indicators of the Republic of Kazakhstan

1.1 Key macroeconomic indicators for 8M2015

The financial system of Kazakhstan is the most advanced and legally reformed compared to other CIS countries, and its level of financial sector is leading among post-Soviet states. It is recognized as one of the most progressive, as evidenced by estimates of the leading international experts. Kazakhstan was the first among the CIS countries to create the National fund for ensuring sustainable socio-economic development and reducing dependence on unfavorable external factors. In August 2015, gross international reserves of the National Bank of the Republic of Kazakhstan increased by 0.4% to USD 29.1 bln. Net international reserves of the National Bank increased by 0.3% to USD 28.3 bln. During August 2015, international reserves of Kazakhstan, including foreign currency assets of the National Fund (USD 68.8 bln.), increased by 0.7% to USD 97.9 bln.

Table 1. Key indicators of the financial market of the Republic of Kazakhstan as of 01/09/2015, KZT bln.

Indicator Banking sector Securities

sector*

Insurance

sector

Mortgage

companies

Total assets 19 497.0 92.7** 730.8 263.5

Total liabilities 17 140.0 18.9** 377.9 215.0

Equity 2 356.9 73.7 353.0 51.9

* - as of 01/07/2015.

** - financial indicators, excluding tier-2 banks

Source: National Bank of the Republic of Kazakhstan

4


Table 2. Мacroeconomic indicators

Мacroeconomic indicators Unit of measure

2011 2012 2013 2014 01/09/2015

Population thous.ppl. 16,673 16,909.8 17,160.8 17,417.7 17,584.0

Gross domestic product KZT bln. 27,571.9 30,346.9 35,275.1 39,040.9 -

Industrial output KZT bln. 15,929.0 16,851.8 17,833.8 18,531.8 10,329.3

Agriculture gross output KZT bln. 2,286.0 1,999.0 2,386.1 2,527.9 1,866.4

Construction output KZT bln. 2,085.1 2,266.8 2,439.4 2,667.2 1,853.9

Communication services KZT bln. 582.7 599.6 647.3 680.8 510.3

Retail trade turnover KZT bln. 3,865.8 4,567.7 5,474.3 6,332.3 4,415.8

Fixed capital investments KZT bln. 5,010.2 5,473.2 6,072.7 6,591.5 4,664.0

Consumer Price Index (CPI) (the end of the period, % to

December of the previous year)

% 107.4 106.0 104.8 107.4 102.9

Producer Price Index (PPI) (the end of the period, % to

December of the previous year)

% 120.3 102.1 99.5 98.4 111.6

Unemployed population (assessment)

thous.ppl. 473.0 474.8 470.7 451.9 444.0

Employed population thous.ppl. 8,301.6 8,507.1 8,570.6 8,510.1 8,575.3*

Unemployment level (assessment)

% 5.4 5.3 5.2 5.0 4.9

Average monthly nominal salary KZT 90,028 101,263 109,141 121,021 121,817

Short-term economic indicator % 107.1 102.1 105.2 102.8 100.8

* 2Q2015

Source: Committee on statistics of the Republic of Kazakhstan 1.2 Dynamics of the economy's sectors The industrial output in January-September 2015 amounted to KZT 10,329.3 bln. in current

prices, which is 1% less than in January-September 2014.

Some industries experienced slowdown, so the production in mining and quarrying decreased

by 1.8%, by 1.7% in electricity, gas, steam and air conditioning, by 9% in water supply,

sewerage system, control over waste collection and distribution.

Since 2010 the construction industry has continued to grow, an increase in January-September

2015 was about 4.5%.

5


Table 3. Industry Index, %

Industry

99,0

Agriculture 103,1

Construction 104,5

Trade 100,9

Transport 106

Communication 101,7

Since 2012, the agriculture gross (services) output

has continued to grow up and as of January-September

2015 it amounted to KZT 1,866.4 bln., that is 3.1%

more than in the same period last year.

Production in manufacturing increased by 0.7%.

Index of physical volume in transport industry in

January-September of 2015 amounted to 106%, in

communication industry - 101.7%, and in trade industry

- 100.9%.

Source: Committee on statistics of the Republic of Kazakhstan 1.3 Key indicators of the insurance sector

Table 4. Key indicators of the insurance sector

Indicators 01/09/2014 01/01/2015 01/09/2015

Insurance premiums to GDP ratio, % 0.42 1.59 0.49

Equity capital to GDP ratio, % 0.75 0.74 0.85

Assets to GDP ratio, % 1.57 0.69 1.77

Insurance premiums per capita, KZT 9,540 15,297 11,412


According to the National Bank of the Republic of Kazakhstan, annual insurance premiums per capita in Kazakhstan are $40 on average in 3Q2015. This rate is much lower than in developed insurance markets of Switzerland (USD 7,700) and

France (USD 3,736), but it corresponds to the level of emerging markets like Serbia (USD

104), Romania (USD 124) and Peru (USD 110).

Specific weight of insurance premiums in GDP remains low. For comparison, in the developed

countries this rate accounts for 6 to 16% (6.1% in Austria, 6.7% in Germany, 7.2% in Italy,

9.4% in the Netherlands, 11% in France and Switzerland, and 16% in the United Kingdom).

6


Section 2. Structure of insurance market of the Republic of Kazakhstan 2.1 Institutional structure

As of 01/09/2015, insurance market of the Republic of Kazakhstan is represented by 33

licensed insurance organizations (including 7 life insurance organizations, 26 general insurance

organizations, 15 insurance brokers and 62 actuaries).

Table 5. Institutional structure

The institutional structure of the insurance sector

01/09/2014 01/09/2015

Number of insurance organizations, including 34 33

Life insurance 7 7

Number of insurance brokers 14 15

Number of actuaries 71 62 Source: National Bank of the Republic of Kazakhstan As of 01/09/2015 there are 111 mutual insurance companies. Insurance companies have 360

branches, including 266 general insurance branches and 94 life insurance branches.

On the reporting date, 30 insurance organizations are participants of JSC Fund of insurance

payments guarantee.

In addition, there are 8 offices representing insurance (reinsurance) companies - non-residents

of Kazakhstan. Three of them represent Russian insurance organizations – OJSC Ingosstrakh,

JSC Russian National Insurance Company ROSNO, OJSC The SOGAZ Insurance group.

According to the National Bank of the Republic of Kazakhstan as of 01/09/2015 there are 3

insurance (reinsurance) organizations (JSC Insurance company Altyn Policy, JSC Ecopolis

Insurance company and JSC Premier Insurance) are under liquidation now.

7

7


Section 3. Assets, equity and insurance reserves

Table 6. Financial indicators of the insurance sector, KZT mln.

Financial indicators 01/09/2014 01/09/2015 Change over 01/09/2014,

%

Total assets

604 719 730 850 21

Liabilities 313 285 377 872 21

including insurance reserves 284 716 337 244 18

other liabilities 28 542 40 628 42

Equity (on the balance sheet) 291 434 352 977 21


Equity. As of 01/09/2015 total equity of insurance companies amounted to KZT 352,977 mln.

The total equity of insurance companies increased almost 2 times from the beginning of 2011.

Figure 1. Change in assets, equity and insurance reserves, KZT bln.

Source: National Bank of the republic of Kazakhstan

8


Assets. The total assets of insurance organizations as of 01/09/2015 amounted to more than

KZT 730,850 mln., which is 20.9% more than in the same period of 2014.

In 2015 there was a slight increase in the structure of insurance companies' assets in

«Money», «Deposits in banks», «Securities» and «Reinsurance assets» accounts, but the

overall investment policy of insurance companies has not undergone major changes compared

to 2014.

Liabilities. As of 01/09/2015 the total liabilities of insurance (reinsurance) companies amounted to KZT 377,872 mln., which is 20.6% more than over the same period last year.

Insurance reserves for fulfillment of undertaken liabilities under existing insurance/reinsurance contracts amount to KZT 337,244 mln. up by 18.4% compared to 01/09/2014.

Table 7. Key financial indicators of five largest insurance (reinsurance) organizations of the

Republic of Kazakhstan as of 01/09/2015, KZT mln.

№

Insurance

(reinsurance)

organization

Assets Insurance

reserves Equity

Retained

earnings

Insurance

premiums

Insurance

claims

1 JSC Eurasia 147,057.4 69,063.2 75,921.0 17,828.0 28,074.0 10,727.0

2 JSC Victory 70,562.5 6,097.7 64,256.5 12,785.7 3,098.8 182.8

3 JSC Halyk

Kazakhinstrah

(Subsidiary of JSC

Halyk Bank)

56,274.9 22,015.2 24,649.7 1,893.7 24,878.5 5,064.5

4 JSC Kazkommerts –

Polis (Subsidiary of

JSC

Kazkommertsbank)

55,621.5 9,888.0 36,958.9 5,003.1 6,313.9 1,726.8

5 JSC Kaspi Insurance 51,924.2 19,109.4 31,715.5 14,986.3 9,381.7 1,155.9

6 Other insurance

companies 349,409.4 211,070.9 119,475.9 30,948.3 128,682.6 32,995.7

Total 730,849.9 337,244.4

352,977.

5 83,445.1 200,429.5 51,852.7


9


Section 4. Concentration of insurance sector of Kazakhstan 4.1 Insurance premiums inflow

As of 01/09/2015 the total insurance premiums increased by 6.6% compared to the same

period of the last year. The growth of insurance premiums for compulsory insurance remains

stable, but voluntary personal and property insurance has taken a downward trend since 2014.

Table 8. Insurance premiums inflow, KZT mln.

Insurance

premiums inflow 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015 01/09/2015

Total, including: 139,963.9 175,528,7 211,513,1 279,235,0 266,121,0 200,429,5

Voluntary personal insurance

35,144.9 53,521.8 85,155.0 94,692.0 81,304.0 54,779.1

Voluntary property insurance

69,382.0 76,541.6 77,678.5 123,251.0 118,641.0 95,759.8

Compulsory insurance

35,437.0 45,465.3 48,679.6 61,293.0 66,176.0 48,890.5


The largest share of insurance premiums as of 8M2015 belongs to voluntary property insurance

(KZT 95,760 mln. or 48% of total insurance premiums). Voluntary personal insurance is 28% of

the total insurance premiums and compulsory insurance is 24% of the total premiums.

Figure 2. Structure of insurance premiums inflow, %

Source: National Bank of the Republic of Kazakhstan, RA of RFCA

10

50 4437

44 48

2530 40

34 28

25 26 23 22 24

0

20

40

60

80

100

120

2011 2012 2013 2014 01.09.2015





4.2 Life insurance sector

As of 01/09/2015 the total insurance premiums of the life insurance sector amounted to KZT

12,657.6 mln. This figure is twice more of last year's. Specific weight of insurance premiums of

the life insurance sector accounted for 11.9% of total premiums as of reporting date versus 7.4%

on 01/10/2009.

Table 9. Structure of insurance premiums in life insurance sector, KZT mln.

Premiums 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015 01/09/2015

Life insurance 1,655.3 6,473.3 15,023.3 28,759.5 24,691.8 16,114.7

Annuity insurance 16,990.5 24,005.5 37,417.2 27,819.2 22,295.3 15,996.6

Total life

insurance

sector 18,645 30,478.8 52,440.5 56,578.7 46,987.1 32,111.3

Total premiums 153,496.8 266,120.9 211,513.1 279,235.0 266,121.0 200,429.5

Life insurance premiums to the total premiums

12% 11% 25% 20% 18% 16%


The change in annuity insurance premiums inflow demonstrates a slight decrease in 2015

compared to 2014 and a significant decrease in 2013.

Figure 3. Structure of insurance premiums inflow in life insurance sector, %


11

9179

71

49 50

921

29

51 50

0

20

40

60

80

100

120

2011 2012 2013 2014 01.09.2015

Life insurance

Annuity insurance


As of 8M2015 the total insurance premiums in life insurance amounted to KZT 32,111 mln.,

weight of the life insurance sector to the total insurance premiums accounted for 16%. For

comparison, the insurance premiums at the beginning of 2011 amounted to KZT 18,645 mln.,

and the weight in the portfolio did not exceed 12%. In western countries this type of insurance

is the dominant one and insurance premiums compose about 50-60% of the total premiums.

4.3 General insurance sector According to the National Bank of the Republic of Kazakhstan, as of 8M2015, the insurance

premiums in the general insurance sector amounted to KZT 168.3 bln. It has increased by 5.3%

versus 8M2014. The observed dynamics has an annual reduction of insurance premiums since

2008.

Table 10. Structure of insurance premiums in general insurance sector, KZT mln.

Insurance premiums

inflow 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015 01/09/2015


Illness insurance 10 546.7 12 402.7 16 550.0 19 140.1 22 186.7 18 134.9

Accident insurance 6 941.5 11 476.6 18 185.2 18 973.0 12 129.9 4 532.9


Property insurance 41 385.5 46 450.8 46 848.3 45 861.7 51 909.9 47 310.1

Insurance against

other financial losses 6 346.3 10 937.0 14 216.7 31 814.3 16 498.5 9 342.9

Voluntary third party

liability 17 906.0 15 410.0 12 134.5 14 831.1 19 159.0 16 604.9

Motor vehicle

insurance 3 366.6 4 257.2 6 730.7 12 174.3 16 756.3 10 755.7


Third party liability

of motor vehicle

owners

20 953.6 27 514.2 27 924.2 31 040.9 33 640.8 26 337.1

Insurance of

employee against

accidents in the

process of execution

of his official

(occupational) duties

12 624.6 22 600.3 26 065.6 26 452.1 28 549.8 20 827.5

Total insurance

premiums 139 963.9 175 528.7 211 513.1 279 235.0 266 121.0 200 429.5


12


Figure 4. Structure of insurance premiums inflow in general insurance sector, %


As of 01/09/2015 the largest amounts of premiums were collected from the property insurance

segment - 24% from the total premiums or 48% from the voluntary property insurance

segment. The premiums of this insurance class have demonstrated steady growth for the past

five years. There was an increase of 13% versus the same period of 2014, but in 2016 we

forecast a possible slowdown in insurance premiums of voluntary property due to transition to

a free-floating FX-rate of KZT and a concomitant decrease in effective demand, in 2015.

In the reporting period, approximately 9% of the total insurance premiums were collected from the illness insurance class. This figure has remained stable over the last five years. As of 01/09/2015 in compulsory insurance sector 13% of insurance premiums were collected on compulsory motor third party liability insurance, about 10% - on compulsory insurance of employee against accidents when he/she performs his/her work (office) duties.

13

2428 30

24 24

11

11 9

11 10

1412 11

13 13

66 11

6 5

8 5

5

7 8

2 3

4

6 5

23 2016 20 24

68 7 5 2

6 7 7 8 9

0

20

40

60

80

100

120

2011 2012 2013 2014 01.09.2015

Illness insurance

Insurance against accidents

Property insurance

Motor car insurance

Voluntary third party insurance

Insurance against other financial

losses

Compulsory motor third party

insurance

Insurance of employee against

accidents when he/she performs

his/her work (office) duties

Other insurance classes


In 2011-2013 period, there was observed a significant annual growth of insurance premiums,

but the growth rate began to decline in 2014. However, the analysis of the insurance premium

figures as of 01/09/2015 and 01/090/2014, KZT 200,429.5 mln. and of KZT 187,948.8 mln.

respectively, allow to assert that at the end of 2015 the growth of this indicator can recover.

There are two leaders in the segment of compulsory insurance - compulsory insurance of third

party liability of motor vehicle owners and compulsory insurance of employee against

accidents in the process of execution of his official (occupational) duties, which are 53% and

42%, respectively, of the total insurance premiums in compulsory insurance segment.

Figure 5. Share of insurance premiums as of 01/09/2015 in

«compulsory motor third party liability insurance», %


The leaders in compulsory insurance of third party liability of motor vehicle owners are three companies - JSC NOMAD Insurance (KZT 3,8 bln.), JSC Tsesna Garant (Subsidiary of JSC Tsesna Bank) (KZT 3,3 bln.), JSC Oil Insurance company (KZT 2,6 bln.).

14

JSC Nomad Insurance

14%

JSC Tsesna Garant

(Subsidiary of JSC

Tsesna Bank) 13%

JSC Oil insurance

company 10%

JSC Alliance Policy 7%

JSC ASKO 6%

JSC Nurpolis

(Subsidiary of

JSC Nurbank) 6%

JSC Sentras

Insurance 6%JSC Salem 4%

JSC Halyk

Kazakhinstrah

(Subsidiary of

JSC Halyk Bank)

4%

JSC Standard 4%

Other insurance

companies 26%


Figure 5-1. Share of insurance premiums as of 01/09/2015 in compulsory insurance of employee against accidents when he/she performs his/her work (office) duties, %


The leaders of collected premiums in this class are JSC Life Insurance Company Kazkommerts Life and JSC Life Insurance Company Halyk Life (Subsidiary of JSC Halyk Bank), which occupy 15% of the market, third and fourth places are shared by JSC Eurasia and JSC Oil insurance company, occupying 7% of the market. 24 insurance companies as of 01/09/2015 have a license on compulsory insurance of

employee against accidents in the process of execution of his official (occupational) duties.

Among them 18 companies are the companies in general insurance and 6 in life insurance.

15

15

JSC Nomad Life 32%

JSC Kazkommerts-Life

15%

JSC Halyk Life

(Subsidiary of JSC

Halyk Bank) 15%

JSC Eurasia 7%

JSC Oil insurance

company 7%

JSC Grandes 5%

JSC Halyk

Kazakhinstrah

(Subsidiary of JSC

Halyk Bank) 3%

JSC State annuity

company JSC 3%

JSC Asia

Life 3%

JSC Alliance

Policy 2%

Other insurance

companies 6%


4.4 Insurance claims

The total insurance claims (less reinsurance claims) as of 8M2015 amounted to KZT 51,852.7

mln. This figure, according to the Committee of financial supervision of National Bank of the

Republic of Kazakhstan, amounted to KZT 20,076 mln. versus the same period in 2014.

Table 11. Insurance claims*, KZT mln.

Insurance claims 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015 01/09/2015

Total, including 27,139.6 46,139.2 75,706.3 61,461.1 70,980.3 51,852.7


13,554.5 23,570.4 41,138.6 24,285.6 26,680.8 20,035.1


3,769.8 9,677.2 17,031.1 15,595.4 14,977.5 13,870.2


9,815.3 12,891.6 17,536.6 21,580.1 29,321.9 17,947.4

Source: National Bank of the Republic of Kazakhstan * (excluding reinsurance claims)

Figure 6. Structure of insurance claims, %


16

1421 22 25 27

50

51 5440 39

3628 23

35 34

0

20

40

60

80

100

120

2011 2012 2013 2014 01.09.2015


Voluntary personal

insurance

Voluntary property

insurance


Table 12. Structure of claims in compulsory insurance segment, KZT mln.

Class of insurance 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015

Third party liability of motor vehicle owners

9,310.2 11,445.5 9,441.3 14,864.3 11,291.1

Third party liability of tourist operator and tourist agent

19.1 136.5 147.3 261.2 220.4

Insurance in agriculture 942.3 308.6 185.7 1,065.8 120.4

Insurance of employee upon accidents in the process of execution of his official (occupational) duties

7,057.5 9,570.6 8,440.0 13,040.2 6,259.4

Total claims 17,536.6 21,580.1 18,263.9 29,321.9 17,947.4


Figure 7. Claims in compulsory insurance segment as of 01/09/2015, %


As the figure 6 of the structure of insurance claims for compulsory insurance for the past two

years shows, there was a significant increase in the class of compulsory insurance of third party

liability of tourist operator and tourist agent, that occurred with an abrupt growth in the number of

bankruptcies of major travel firms of Kazakhstan.

In 2015 the reduction in number of insurance companies with the license under compulsory

insurance in agriculture to two: JSC Grain insurance company and JSC Halyk Kazakhinstrakh (JSC

Subsidiary of Halyk Bank) – caused the decrease of the insurance claims on this insurance class.

7

17

Insurance in

agriculture 1%Third party liability of

tourist operator and

tourist agent 1%

Third party liability of

motor vehicle owners

63%

Insurance of employee

against accidents in

the process of

execution of his official

(occupational) duties

35%


There is an increasing trend in claims on insurance of employee against accidents in the

process of execution of his official (occupational) duties.

Table 13. Structure of voluntary personal insurance claims, KZT mln.


Life insurance 450.7 546,. 575.8 799.8 582.2

Annuity insurance 28,992.4 8,781.8 5,853.1 8,855.3 6,794.9

Accident insurance 883.9 1,278.8 883.3 1,153.8 1,572.7

Illness insurance 10,811.6 13,678.9 10,056.3 15,871.9 11,085.1

Total claims 41,138.6 24,285.6 17,368.5 26,680.8 20,035.1


Figure 8. Shares of voluntary personal insurance claims as of 01/09/2015, %


In the structure of voluntary personal insurance claims, illness insurance has demonstrated

growth for the last two years, covering 55% of the total voluntary personal insurance claims.

Annuity insurance claims decreased in nominal terms versus 2013, but they account for 34% of

total claims. The share of voluntary life insurance is still low at only 3% of total claims.

18

18

Annuity insurance

34%

Accident insurance

8%

Illness insurance 55%

Life insurance 3%


Table 14. Structure of claims in voluntary property insurance segment, KZT mln.


Motor vehicle insurance 1,839.3 2,718.9 2,996.0 4,690.1 3,595.3

Property insurance 12,226.6 9,360.9 3,910.3 6,795.4 6,710.9

The insurance of third party liability 1,867.9 868.6 922.6 1,527.7 449.0

Total claims 17,031.1 15,595.4 8,819.4 14,977.5 13,870.2


Figure 9. Shares of claims in voluntary property insurance segment as of 01/09/2015, %


The structure of claims in voluntary property insurance segment has recently been marked by the growth in motor vehicle insurance class, which accounts for only 26% of total claims. Property insurance still holds the largest share (48%), however, in nominal terms, there is a tendency of slowing growth rate. Conserning insurance claims on insurance contracts by Kazakhstan regions (according to the National Bank of the Republic of Kazakhstan as of 01/07/2015), most of the claims have been paid in Almaty: on compulsory insurance - 13% (KZT 4,261.1 mln.), voluntary personal insurance - 18% (KZT 5,709.9 mln.) and voluntary property insurance - 7% (KZT 2,115.3 mln.). By economic activity the largest insurance claims were paid to the mining and quarrying industry - 14% (KZT 4,596.7 mln.), on insurance of physical persons - 44% (KZT 14,255.4 mln.), as well as on financial activities - 8% (KZT 2,470.9 mln.).

19

Property insurance

26%

Motor vehicle

insurance 26%

Other classes of

insurance 48%


The specific weight of top-10 insurance companies accounted for 75.9% of the total assets of

the insurance market, 58.6% of the total insurance premiums and 58.7% of insurance

payments.

Table 15. Share of total indicators of the insurance market, %

Weight from total figures of the insurance market, % 01/09/2014 01/09/2015

Premiums of the top ten insurance companies 53.5 58.6

Claims of the top ten insurance companies 50.9 58.7

Assets of the top ten insurance companies 69.1 75.9

Equity of the top ten insurance companies 72.7 76.6

Source: National Bank of the republic of Kazakhstan

Figure 10. Insurance premiums inflow, by insurance company as of 01/09/2015


As of 01/09/2015 the largest share of insurance premiums in the total amount is occupied by JSC Eurasia (14%) and JSC Halyk Kazakhinstrakh (Subsidiary of JSC Halyk Bank) (12%).

JSC Eurasia 14%JSC Halyk

Kazakhinstrah 12%

JSC Kazakhmys 7%

JSC Nomad Life 6%

JSC Halyk Life 6%JSC Nomad

Insurance 5%

JSC European

Insurance company

5%

JSC Kaspi

insurance 5%

JSC Oil insurance

company 4%

JSC Kazkommerts-

Life 3%

Other insurance

companies 32%


Figure 11. Insurance claims, by insurance company as of 01/09/2015


As of 01/09/2015 the largest share of the total claims belongs to JSC Eurasia (21%) and JSC Halyk Kazakhinstrakh (Subsidiary of JSC Halyk Bank) (10%).

Section 5. Reinsurance The insurance premiums passed to reinsurance companies over 8M2015 amounted to KZT 66,815 mln. or 33.3% of the total insurance premiums. At the same time 28.6% of total insurance premiums were passed to non-residents reinsurance companies. The total sum of insurance premiums received by insurance (reinsurance) companies under

reinsurance contracts amounted to KZT 16,630 mln. The insurance premiums taken for

reinsurance from non-residents amounted to KZT 8,370 mln.

Table 16. Structure of insurance premiums passed for reinsurance

Insurance premiums passed for reinsurance

01/09/2014 01/09/2015

KZT, mln. %* KZT, mln. %*

Total passed, including 62 637 33,3 66 815 33,3

non-residents 48 759 25,9 57 368 28,6

residents 13 878 7,4 9 448 4,7

Total received for reinsurance from non-residents 10 420 5,5 8 370 4,2

Source: National Bank of the Republic of Kazakhstan * *in percentage under insurance and reinsurance agreements

21

JSC Eurasia 21%JSC Halyk

Kazakhinstrah

10%

JSC Oil insurance

company 7%

JSC Nomad Life 6%

JSC Tsesna

Garant 5%

JSC Nomad

Insurance 5%JSC Interteach 4%

JSC Alliance

Policy 4%

LIC State annuity

company JSC 4%

JSC Halyk Life 4%

Other insurance

companies 30%


Insurance companies reinsure their risks primarily in the UK, the Czech Republic and Germany.

Most reinsurers have high ratings from international rating agencies.

Figure 12. Structure of insurance premiums passed to reinsurance companies, by country

as of 01/09/2014 and 01/09/2015, %


22

1722

22 14

1214

1210

10

8

7

7

4

5

4

4

13

22

9 11

0

20

40

60

80

100

120

Other countries

China

France

UAE

USA

Switzerland

Russian Federation

Germany

Czech Republic

Kazakhstan

Great Britain


Section VI. Government regulation

The major event of the year in the insurance activity legislation was the adoption of the

Law of the Republic of Kazakhstan from April 27, 2015 № 311-V “On amendments and

additions to some legislative acts of the Republic of Kazakhstan on insurance and Islamic

financing”.

The main purpose of the changes is to ensure steadiness and financial stability of the

system of guaranteeing insurance payments, to improve the system of compulsory insurance

of employees against accidents.

According to the amendments, there was a partial transfer of liability to the employer

for damage compensation in trivial cases of disability (without assignment of disability).

Employer will pay compensation if the degree of professional disability is determined in the

range from 5 to 29 percent inclusive. This measure is intended to enhance the interest of an

employer in rehabilitation of the injured workers and creation of prerequisites for

improvement of working conditions and safety in enterprises.

In his turn, insurer makes insurance payments in case of the loss of the employee's

earnings between 30 and 100 percent inclusive or death of an employee, i.e. the insurance

company will have to cover significant losses.

In order to optimize insurance payments there was made an amendment to the Law

“On compulsory insurance of employee against accidents in the process of execution of his

official (occupational) duties”, according to which the size of the recoverable average monthly

income will not exceed 10 times minimum wage at the contract date. Insurance payment will

also be net of social payments from the State Social Insurance Fund, which will also increase

an interest in early rehabilitation of workers.

An employee's guilt will be considered in determining the insurance payment amount,

but in condition of gross negligence of the employee contributing to violation of labor

protection rules, safety and security of their health.

The legislative rule will increase the interest of employees to comply with safety

requirements and thus may reduce the number of accidents at work.

Now, the legislation provides for the application of a single tariff for all staff categories

in each class of professional risk. To determine the cost of insurance premium, it is necessary

to multiply the annual payroll and the rate corresponding to the class of professional risk,

depending on the enterprise's activity.

Also, to determine the annual payroll, the insurant should apply monthly income of

each employee, but not more than 10 times minimum wage established by the Law on the

republican budget for the financial year multiplied by 12.

There was introduced a correction factor, which is based on the average number of injured

workers over the past 5 years preceding the date of conclusion of insurance contract and

corresponding to the total number of employees at the contract date. Thus, the calculated

insurance premium should be multiplied by the appropriate correction factor.

The minimum insurance amount is set. If the calculated insurance with the statutory

tariff will be less than 1 Minimum wage, the insurance premium shall be rounded up to 1

Minimum wage.


Amendments and additions to the legal and regulatory framework governing the

activities of the insurance sector, were mainly directed to a further development of certain

aspects of the insurance sector regulation.

In particular, over 8M2014 following amendments were introduced to the regulatory

framework of the insurance sector. They presume:

- establishment of the procedures of the correction factor application in calculation of

the insurance premium on the contract of compulsory insurance of employee upon accidents

in the process of execution of his official (occupational) duties;

- approval of the list, forms, reporting deadlines of the mutual insurance societies and

the Rules of their submission;

- approval of the list, forms, reporting deadlines of the insurance (reinsurance)

organizations and insurance brokers and the Rules of their submission;

- establishment of the procedure for remuneration of Islamic insurance (reinsurance)

organization for the Islamic insurance fund management as part of the insurance premium

under the conclusion of an Islamic insurance (reinsurance) contract and (or) the part of the

income derived from the investment of Islamic insurance fund;

- establishment of the regulatory values and methodology for calculation of prudential

standards for Islamic insurance (reinsurance) organization and other mandatory norms and

limits;

- approval of the formation Rules, registration, use and distribution of Islamic insurance

fund;

- approval of the Rules of money transfer from Islamic insurance (reinsurance)

company to Islamic insurance fund.

24


Section VII. Forecast

According to the report on financial stability published by the National Bank of the Republic of

Kazakhstan on July 29, 2015, the current imbalance in the development of the insurance

sector leads to the increase of negative trends caused by the transfer of risk to the external

reinsurance, investment activity, high commissions to insurance agents.

Considering a slowdown in insurance premiums, expected inflation and national currency

devaluation, a significant increase in the cost of the insurance premium is not expected in the

in the current economic situation.

The profitability of the insurance sector will gradually decline due to the loss growth of the

insurance sector, which can serve as a signal for the insurance companies to monitor the

quality of the taken risks more efficiently.

25


Published by JSC Rating Agency of the Regional Financial Center of Almaty (Rating Agency of the RFCA)

Any form of copying, reproduction, distribution and forwarding of texts, graphs and other types of materials posted

on the website of the "Rating Agency of the RFCA" must be accompanied by a hyperlink to the website

www.rfcaratings.kz and indication of the author of the material.

Copyright JSC Rating Agency of the RFCA 2016

JSC Rating Agency of the RFCA

136 Dostyk avenue, Floor 9

Business Center Pioneer

050051 Almaty

Telephone: (727) 224 48 41, 224 48 44

Fax: (727) 224 48 41

E-mail: [email protected]

Website: http://www.rfcaratings.kz

26

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