While still just a blip on the GDP growth screen, Kazakhstan's insurance sector has several catalysts to build premiums on, wider economic conditions permitting.

The relative recovery of the local currency since the trauma of Kazakhstan's 2015 unpegging of the tenge from the dollar pays dividends to the broad economy, and by extension the financial universe and the insurance sector within it. Official data from its regulator, the National Bank of Kazakhstan (NBK), as of year-to-December 1, 2016 puts total sector assets at KZT865.4 billion, up 4.9% YtD, shared among 32 insurance firms, seven of which operate in the life insurance branch. Meanwhile, sector liabilities were up 7.9% YtD to KZT454.1 billion, 92.4% of which comprised insurance reserves of KZT419 .2 billion.

Official figures confirm a concentrated market where the 10 largest insurance firms hold 74% of total assets, 75.1% of total equity capital, 56.6% of overall insurance premiums, and 53.7% of total insurance payments. This suggests that large firms are capable of, and prepared to, survive in a limited pool, where the share of the sector's total assets to GDP is at just 1.95%, while insurance premiums contribute 0.75% to GDP and the per capita insurance premium ratio is at KZT18,777.5. And when adding smaller players to the mix, the other implication is price competition on what, after all, is a market of fairly homogeneous products.

The NBK has taken steps to establish a stable trajectory towards wider national program goals for financial development. Accordingly, the NBK, together with the Association of Insurers of Kazakhstan and the Kazakhstan Financiers Association, have laid out an insurance market roadmap envisaging a climate of competition on quality over price. And in support of the National Plan, on November 18, 2015, President Nursultan Nazarbayev signed social health insurance legislation on compulsory social health insurance. The idea is to bolster the healthcare system by sharing the burden of responsibility among state, employer, and citizen. Accordingly, as of July 1, 2017 the state contribution to compulsory insurance will be 4% of assessed cost, rising to 5% in 2018, 6% in 2023, and 7% in 2024. Meanwhile, initial employer contributions to the fund of 2% will rise by 1ppt per annum to 5% in 2020. Employee contributions commence at 1% in 2019, rising to 2% in 2020, although select employee and entrepreneur cases commence at 2% in 2017, rising incrementally to 7% by 2020

A Case Study

Local insurer Kazakhmys, in business for 15 years, is today the nation's third-largest player. In an interview, CEO Amina Kassymova informed TBY that the firm had “excelled in the market (being) ranked second in the general collection of insurance premiums.” On November 4, 2016 Fitch Rating confirmed the financial strength rating (FSR) of Kazakhmys at B+, acknowledging its strong capitalization and healthy profitability; the firm posted total 9M2016 profit of KZT230 million (USD680,340). Fitch's wide-angled view was instructive, as it found the insurer vulnerable to the nation's as-yet developing capital markets, which curbs the strength of investment portfolios. That of Kazakhmys was 79% concentrated in bank deposits during the previous year. Moreover, 58% of the investment portfolio was located in local banks, predominantly of B ratings. For 9M2016 premiums rose 99% following 48% annual growth in 2015, essentially driven by compulsory civil liability insurance in the auto branch, which had climbed to 68% of the portfolio by net premiums from 52% in 2015, which itself had doubled the 2014 print.


Official data for the aforementioned period of 2016 put total insurance premiums passed for reinsurance at KZT126 billion, making 37.8% of total insurance premiums. And tellingly, of that sum 86.6% went for reinsurance to non-resident parties. Meanwhile, total insurance premiums received for reinsurance were at KZT3141 billion. Reinsurance assets of KZT115.4 billion for the period claimed 13.3% of total assets on a YtD rise of 31.5%.

Returning to Kazakhmys, Fitch concluded that its reliance on external reinsurance was high, at 90% during 9M2016, up from 84% a year before. The firm mostly turns to reinsurance to safeguard large corporate contracts, enduring volatile commissions in the process. Touching on the topic of ratings that Fitch had raised in its abovemention appraisal, CEO Kassymova stressed that the company had “developed a balanced reinsurance structure that allows our customers to be confident in their choices, because 90% of the portfolio is reinsured in the companies with a rating of A- or higher.”

Growth from Where?

Where growth potential is concerned, Kazakhstan has several bases covered. First of all there are its dynamic demographics, with life expectancy of 69.9 as of 2013, added to which is higher urbanization of around 60%; this despite the government's attention to the agricultural sector for realizing the longer-term National Plan 2050. Thus, although coming from a low base, life insurance, namely pension and endowment products, are seen performing strongly in line with economic advancement. As of December 1, 2016, total life insurance premiums were at KZT49.8 billion, up 5.5% YoY. In bold contrast, the 31% YoY rise of non-life premiums took the tally to KZT283.6 billion. Furthermore, Timetric's Insurance Intelligence Center (IIC) research forecasts the life insurance sector doubling KZT56.6 billion in 2013 to KZT132.7 billion by 2018.

Added to this is the fact that economic trauma yields its own fruit. The Kazakhstani citizen has seen first hand the reality of devaluation and economic uncertainty, which the NBK has now largely reversed. From such experience comes caution, but also awareness of the need for protection—key to viewing insurance as a life investment for oneself and one's loved ones. Going forward, awareness programs from both regulator and sector players, combined with a wider leveraging of the digital platform, will go a long way to converting precautions into premiums.

Some Additional Numbers

In April of 2016, S&P, too, evaluated the local sector, maintaining its “moderate” insurance industry country risk assessment (IICRA) for the property/casualty (P/C) insurance industry, regardless of such challenges as low oil prices denting GDP growth, and a weakened currency negatively impacting consumer sentiment. It, therefore, anticipated decelerating demand for voluntary insurance. Yet subsequent data has proven somewhat encouraging, as for year-to-December 1, 2016 the total volume of insurance premiums was at KZT 333.4 billion, up 26.7% YoY. Moreover, the bulk of insurance payments made came precisely from voluntary personal insurance at 35.7%, followed by voluntary property insurance at 31.6% and compulsory insurance at 32.7%.
In its assessment, S&P forecast sector growth of 3-5% in nominal terms for 2016-2017, supported largely by obligatory business lines for the period. Yet its prognosis was also for negative growth based upon its then forecast inflation rates of 10% in 2016 (actual print 8.29%) and 8% in 2017. For 11M2016, premiums derrived from compulsory insurance of KZT84.2 billion claimed 25.3% of total insurance premiums. In terms of payments, an area where the sector has traditionally suffered from loose practices, 11M2016 saw a print of KZT76.8 billion, up 27.8% YoY. In terms of robustness as determined by capital adequacy, the sector held regulatory capital of KZT295.7 for 11M2016, up 30.7% YtD. Yet in terms of sector profitability we observe net income of KZT73.1 billion, marking a 57.4% YoY decline, where return on assets (ROA) came in at 9%, and return on equity (ROE) at 18.3%.

As to near term expectations, Kazakhmys' Kassymova, who foresees potential 5-7% sector growth, feels that “its future will depend more on participants' ability to optimize insurance products and business processes (where) first-class service, timely payments, and an overall client-orientated strategy are the keys to solving many issues.”