Tashkent, Uzbekistan (UzDaily.com) -- Fitch Ratings has affirmed Uzbekistan-based Gross Insurance Company JSC’s (Gross) Insurer Financial Strength (IFS) Rating at ‘B+’. The Outlook is Stable.

The rating reflects the company’s favourable business profile, weak capital position, adequate albeit strengthening financial performance and lower investment risk relative to peers.

Fitch ranks Gross’s business profile as ‘Favourable’ compared with other Uzbek insurers. This assessment is driven by its favourable business diversification and competitive positioning and moderate risk profile. Gross’s net business mix remains well-diversified, but there was a shift in 2023 toward motor insurance lines, moving away from property and casualty insurance business following the market trend on motor insurance growth.

Its moderate business risk profile reflects a fairly mixed risk appetite, as evidenced by a raised appetite for inward reinsurance, remaining exposure to financial risk insurance and decreased share of property reinsurance lines. Fitch believes that Gross has a prudent and sophisticated underwriting approach in motor lines compared with peers, which accounted for 41% of total gross written premiums (GWP) in 2023.

Fitch views Gross’s operating scale metrics as limited comparing with international peers as the company’s consolidated GWP in 2023 was UZS509 billion or about USD43 million based on the average official exchange rate. At the same time, the company is a significant domestic player (fourth largest) with a market share of 5.8% in 2023.

Gross’s capital position, as measured by Fitch’s Prism Factor-Based Model (FBM), was below ‘Somewhat Weak’ at end-2023, pressured by elevated asset risks stemming from its investment portfolio and growth strategy. The regulatory solvency margin improved to 118% at end 2023 and 122% at end-1Q24 from a low of 105% at end-2021 driven by profit reinvestment. However, we regard this improvement as moderate. Fitch expects the solvency margin to gradually improve in the coming years, driven by profit reinvestments.

Gross’s Fitch-calculated return on equity (ROE) returned to 23.5% in 2023, having dropped to 6.0% in 2022, driven by improved non-life underwriting results and favourable exchange rate dynamics. The company’s average ROE in 2020-2023 was 22.6%, which Fitch views as supportive of the rating. Nevertheless, the rating captures the volatility of financial results, the significant component of foreign-exchange gains and the negative underwriting results of the company.

The insurer predominantly invests in fixed-income instruments in the form of bank deposits, which are mainly placed with state-owned and large private local banks. Fitch believes that Gross’s investment portfolio is of better credit quality and more diversified than other rated local peers.

Similar to its regional counterparts, Gross faces significant exposure to catastrophic events. The firm lacks any form of catastrophe insurance and also does not engage in internal evaluations to estimate the maximum potential impact on its portfolio of business. Without measures in place to mitigate the effects of catastrophes, the company’s capital is at risk of substantial losses that have not been predicted or accounted for.

In April 2023, the elimination of tax incentives for life insurance products led to a 79% contraction in premium volumes across the sector. Gross’s life insurance subsidiary’s premiums were UZS59 billion in 2023, a steep drop from UZS721 billion the previous year and in May 2024 its license was withdrawn at the company’s request. New Life remains obliged to fulfil its obligations under previously concluded contracts.

Fitch does not expect this event to impact Gross’s non-life business profile. The negative impact on the group’s capital and financial performance is mitigated by the short-term nature of the life insurance contracts, historically negative life underwriting results and New Life’s solvency margin above 1x. This should support the fulfilment of contract liabilities under previously signed life insurance contracts.