Tashkent, Uzbekistan (UzDaily.com) -- Fitch Ratings has assigned AGROS HAYOT Limited Liability Company (Agros Hayot) an Insurer Financial Strength (IFS) Rating of ‘B+’. The Outlook is Stable.

The rating is support-driven, but is one notch below the Republic of Uzbekistan’s ‘BB-’ Long-Term Local-Currency Issuer Default Rating (IDR). The one-notch difference is because Agros Hayot is not formally on the list of strategic state-owned companies that the Uzbek state has committed to support and develop. In its analysis, Fitch has assumed that the sovereign will be more selective in providing support to Agros Hayot than it is to the listed companies. We have evaluated support potential based on the insurer’s strategic importance to the sovereign compared with that of other institutions in the country that are potentially subject to government support.

Agros Hayot was founded in 2016 by Uzagrosugurta Joint-Stock Company (IFS Rating: BB-). Uzagrosugurta’s IFS rating is also support-driven, but is equalised with Uzbekistan’s Long-Term IDR because of the insurer’s systemic role in the agricultural sector, a major part of the local economy.

Agros Hayot was established to add life products to the group’s business mix, to allow the group to benefit from the rapid growth of life insurance in Uzbekistan, which followed the strong tax incentives for individuals investing in life insurance policies. These tax incentives meant the Uzbek life insurance sector grew 10x from 2016 to 2019, as measured by premiums written.

The tax reform in 2019 significantly reduced the tax-saving opportunities for life policyholders. Uzbek life insurers, including Agros Hayot, now need to refocus their strategy on other products. The key growth prospects for local life insurers are likely to be in bancassurance, where Agros Hayot has not yet achieved a strong competitive position. Despite the tax reform, we expect Agros Hayot to be supported if needed by Uzagrosugurta, and ultimately by the Uzbek state.

This expectation is based on record of support. Uzagrosugurta has demonstrated its strong commitment to support Agros Hayot by injecting UZS31 billion to Agros Hayot’s share capital in 2018-2020 to help the life subsidiary meet new regulatory requirements regarding minimum share capital. Agros Hayot is adequately capitalised, with a solvency margin of 1.2x at end-2020 (unchanged from 2019).

Fitch believes that Agros Hayot’s standalone profile is weak, reflecting a weak risk-adjusted capital position, the insurer’s very limited claims statistics, a fairly new IT system, still-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 Agros Hayot’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 Agros Hayot’s rating.