However, life and non-life sectors are under pressure of the challenging operating environment taking into consideration low real wealth of the population, low payment culture and poor financial literacy - all that leads to inadequate insurance protection, low average premium per capita of USD 70 and, thus, hampers the development of both sectors, S&P noted.
The rating agency's growth prospects for the insurance market remain positive provided the expected real economic growth at about 3.6% on average over 2020-2022, but at the same time insurance penetration will remain low compared with developed economies. S&P expects that regulatory initiatives will foster the development of the life sector in the mid-term, with market growth of above 20%. As for non-life, the agency expects growth at about 5% in real terms in 2020, depending on the competitive landscape, purchasing power, as well as inflation.
Despite intensifying competition, S&P expects that the most rated non-life insurers will be able to maintain their positions. The market GWP leader, EURASIA, is well diversified with property, liability, motor, and medical insurance lines, and its considerable capitalization allows it to retain meaningful exposure to property risks on its balance sheet, unlike most other local insurers. EURASIA is reinsuring international risks, while other insurers write risks primarily in Kazakhstan.
The agency expects that competition in non-life sector will remain high in corporate and retail insurance, while motor, liability, and property lines will be close to 80% of the non-life market in 2020-2021. As for the life sector, even if competition will intensify, it will not materially change the landscape in the next 12-18 months provided high concentration of the sector (TOP-3 accounted for 87% life GWP in 2019).
The reinsurance utilization ratio for non-life companies decreased to 24% in 2019 from 42% three years ago due to regulatory incentives to retain more risks. However, according to the agency, some insurers are still significantly dependent on availability of good quality reinsurance protection.
Thanks to solid performance of the most rated insurers, S&P expects that non-life companies' combined ratios will be about 95%, the sector's profitability will remain good, with return on equity (ROE) of 15%-20%. While the average life ROE to be above 25% per year in 2020-2021 and return on assets (ROA) about 6%, which is robust compared with European life insurance companies, as the agency explained.
Strict regulatory oversight and more conservative investment policies has improved the overall credit quality of rated insurers' investment portfolios over the past two years to the 'BB+'-'BBB-' rating range from 'B'-'BB' three years ago. However, banking sector exposure still weighs on insurers' asset quality. Besides, the agency noted, that most rated insurers have high exposure to foreign-exchange risk. At the same time, S&P mentioned, that the insurers are generally liquid with all rated companies' liquidity ratios of above 120%.
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