NUR-SULTAN

The insurance sector in Kazakhstan is growing at an accelerated pace, largely driven by unit-linked production, which attracts market capacity but increases competition among life insurers, Fitch Ratings said.

There are 27 insurance companies in Kazakhstan, nine of which are life insurers. The net profit of the insurance sector, mainly derived from income from insurance activities, increased by 13.6 billion tenge ($31.7 million) in September and amounted to 90.7 billion tenge as of October 31, the  Central Asian country’s Agency for Regulation and Development of the Financial Market said.

The total assets of insurance and reinsurance companies increased by 0.8 percent in September and amounted to 1.72 trillion tenge as of October 1. The increase was mainly due to the growth of insurance premiums and their investment in securities. Since the beginning of 2021, the assets of insurance (reinsurance) companies have increased by 15.6 percent.

Fitch said that unit-linked products had been available to clients since 1 January 2021 and contributed up to half of the exceptional market growth of 104 percent over the first eight months of this year. This, coupled with the changes to the Kazakh Tax Code, which introduced tax incentives for savings insurance, boosted the sector growth, the agency said.

“These developments encouraged new entrants to the market, which are sister companies of the established non-life companies on the domestic market, increasing competition,” Fitch said in a non-rating action commentary.

Fitch said it believed that the further amplification of the sector companies was limited and was being mainly driven by the interests of the large domestic financial insurers.

This business expansion does come with challenges, Fitch said and added that it viewed the average quality of asset-liability management in the sector as weak.

The currency and term structure of the technical reserves and investments carry significant mismatches. Kazakh life insurers suffer from the lack of a reasonable range of investment instruments by duration and credit quality.

“Fitch believes that this risk could be aggravated by further growth in life insurance,” the agency said.

The volume of insurance premiums amounted to 522.4 billion tenge as of October 1, which is 40 percent more than in the same period last year. Since the beginning of 2021, 523,300 insurance payments have been made for a total of 88.2 billion tenge, which is 22.9 percent less than in January-September last year.