Tashkent, Uzbekistan (UzDaily.com) — International rating agency Fitch Ratings has downgraded the Insurer Financial Strength (IFS) rating of Kapital Sugurta JSC, an Uzbekistan-based insurance company, from ‘B’ to ‘B-’, with a Stable outlook.

Fitch’s decision is driven by the insurer’s elevated business risks, declining business diversification, weakened capitalization, poor financial performance, and high investment and reserve risks.

Kapital Sugurta holds a 3.9% market share in Uzbekistan’s general insurance sector. Fitch highlights the company’s deteriorating diversification and increasing business risks due to its growing focus on financial risk insurance. In 2024, financial risk insurance—covering credit defaults and borrower bankruptcies—accounted for 60% of the company’s gross premiums and 52% of net premiums, compared to just 11% and 12% in 2022. This strategic shift has heightened Kapital Sugurta’s vulnerability to loss volatility, especially amid macroeconomic uncertainty.

Kapital Sugurta’s capitalization weakened in 2023 due to business expansion and low internal capital generation. Fitch’s Prism Global model rated the company’s capitalization as “Weak” at the end of 2023, with projections indicating it will remain at low levels through 2024–2025.

The company’s regulatory solvency ratio slightly improved from 124% at the end of 2023 to 128% by the end of Q3 2024. However, it remains under pressure due to business growth and stricter capital requirements. The net written premium-to-capital ratio increased to 3.5x by the end of Q3 2024, up from 3.1x in 2023 and 2.5x in 2022.

Kapital Sugurta’s return on equity (ROE) fell to -4.3% in 2023, down from 1.7% in 2022 and 1.2% in 2021, lagging behind Uzbekistan’s inflation rate. The decline was driven by an increase in the company’s loss ratio from 43% in 2022 to 71% in 2023, primarily due to weak performance in mandatory motor third-party liability insurance (MTPL) and the growing share of financial risk insurance with poor underwriting quality. Fitch expects the company’s financial stability to remain under pressure in 2025.

Kapital Sugurta faces heightened investment risks due to significant (though reduced) exposure to affiliated assets. This factor contributed to the temporary suspension of its license in early 2024. By the end of 2023, the insurer’s investments in affiliated companies were 1.6x its capital, while equities accounted for 47% of its investment portfolio. The remainder of its investments were in deposits held at Uzbek state and private banks rated between ‘B’ and ‘BB’. Notably, 30% of the company’s deposits were placed with ANOR BANK (B-/Stable) as of Q3 2024.

The company also remains vulnerable in actuarial calculations and reserve formation, a common challenge in Uzbekistan’s insurance market. Kapital Sugurta employs simplified reserving methods for financial and frequency risks, potentially leading to insufficient reserves, especially during economic downturns. Insufficient unearned premium reserves were one of the factors behind its temporary license suspension in 2024.

Despite some regulatory stabilization, Kapital Sugurta continues to face high business and financial risks, putting pressure on its capitalization, profitability, and solvency. Given its heavy reliance on financial risk insurance and weak financial results, Fitch maintains the company’s rating at ‘B-’ with a Stable outlook.