Tashkent, Uzbekistan (UzDaily.com) -- Fitch Ratings has affirmed Uzbekistan-based Uzagrosugurta Joint-Stock Company’s Insurer Financial Strength (IFS) Rating at ‘BB-’. The Outlook is Stable.

The rating is support-driven and equalised with Uzbekistan’s Long-Term Local-Currency Issuer Default Rating (IDR) of ‘BB-’. The equalisation reflects Uzagrosugurta’s indirect ownership by the state and the insurer’s systemic role in the agricultural sector, a major part of the local economy. 

The rating also takes into account the availability of a stop-loss facility for crop insurance from the government from June 2019 and the history of capital support extended to the insurer.

Uzagrosugurta is 94%-owned by the Agency for Management of State Assets of the Republic of Uzbekistan, a government agency established to consolidate and manage various state-owned enterprises. Since its inception in 1997, the insurer has been state-owned. Uzagrosugurta focuses on providing insurance coverage to the agricultural industry, which remains a key contributor to GDP in Uzbekistan, but also manages a diversified portfolio of traditional non-life risks.

The systemic role of Uzagrosugurta is supported by a number of regulations. Firstly, based on the Uzbek government decree signed in June 2019, Uzagrosugurta’s share in claims made on cotton and grain crop insurance policies will be limited to 80% of the line’s premiums written with effect from 2019. Anything over 80% will be refunded to the insurer by the government.

Secondly, the Uzbek government has declared its strategic commitment to help the agricultural industry modernise in 2020-2030 without causing shocks to the related working population or the economy. It is likely to continue extending various types of support, including agricultural insurance.

Thirdly, as per decree of President of Uzbekistan issued in October 2020 state-owned enterprises were categorised as requiring ‘transformation’ (group 1); requiring higher operational efficiency (group 2) and available for sale (group 3). As a group 1 company, Uzagrosugurta will remain state-owned and will focus on the strengthening of its accounting and corporate-governance standards as well as on the development of a long-term strategy.

Fitch believes that Uzagrosugurta’s standalone profile is weak, reflecting a weak risk-adjusted capital position and potentially high reserving risk on prior-year business. The assessment of the reserving risk takes into account the insurer’s very limited sound-quality claims statistics, a less than mature IT system, developing actuarial expertise and simplistic regulatory reserving methodology.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

-A one-notch upgrade of Uzbekistan’s Long-Term Local-Currency IDR would likely lead to a one-notch upgrade of Uzagrosugurta’s rating.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

-A one-notch downgrade of Uzbekistan’s Long-Term Local-Currency IDR would likely lead to a onenotch downgrade of Uzagrosugurta’s rating.

-A significant change to Fitch’s view of Uzagrosugurta’s relations with the government would lead to a downgrade of the rating.