S&P expects PASHA Insurance’s share in real estate insurance market at about 49% in next 2 years

S&P Global Ratings has revised its outlook on Azerbaijan’s PASHA Insurance to positive from stable and affirmed 'BB' global scale long-term issuer credit and financial strength ratings on the insurer, Report informs referring to S&P.

“PASHA Insurance's capital adequacy strengthened within the satisfactory level, and we expect its financial risk profile can improve in the next 12 months, although potentially higher dividends or business growth may have a curbing effect on an improvement in capital adequacy assessment. PASHA Insurance's capital adequacy was marginally above the 99.8% confidence level in 2022, according to our revised capital model, and we forecast it will remain at these levels in the next two years. This reflects our expectation of 10%-15% premium growth in 2024-2025, in line with the market average, high profitability with return on equity exceeding 30% and retention of net profit of up to 20%-25%,” reads the report.

“The company also plans to start managing capital under Solvency II principles. During the transitional phase, the company plans to build capital, which we view positively. At the same time, potential volatility of capital buffers can be caused, for example, by higher-than-expected dividend playouts or higher business growth. We note that the company's dividend policy over the last four years was relatively aggressive with dividend pay-out ratio exceeding 90%-95% in separate years (about 75% in 2023). Its premium growth exceeded 30% in 2023 in terms of net premium earned, supported by adjusted tariffs on compulsory motor third-party liability insurance by the Central Bank of Azerbaijan at the end of 2022 and an increasing penetration in compulsory property insurance. We therefore continue considering its capital buffers as satisfactory.”

“The company will likely remain exposed to investment concentration and high-risk assets. The company's investment portfolio is concentrated in the local banking sector, including deposits in and preferred shares of related-party banks--PASHA Bank (BB-/Stable/B) and Kapital Bank OJSC (BB-/Positive/B) represent more than 25% of investments, which we view as high. We forecast that the weighted-average credit quality of PASHA's investments will be in the 'BB' range. However, it is still speculative grade, and consequently we assess its risk exposure as high,” the S&P analysts said.

“We expect that PASHA Insurance's funding profile will remain neutral. We do not expect the company will rely on debt financing in the next two years. We anticipate that its financial leverage (financial obligations to total shareholder equity plus financial obligations), which predominantly consists of lease obligations, will not exceed 5%-10% in 2024-2025, according to our expectations.

S&P Global Ratings expects that PASHA Insurance will maintain its strong competitive position in Azerbaijan's property/casualty (P/C) insurance market in the next two years. PASHA Insurance is the clear market leader, benefiting from its expertise, brand awareness, and diversified business mix. It also benefits from strong distribution networks that facilitate direct sales. With Azerbaijani manat 293 million (approximately $172 million) of gross premiums written expected in 2023 based on local accounting standards, PASHA Insurance ranks No. 1 in the country's P/C market.

It has about a 49% market share in 2023 (up from 46% in 2022), which we expect it will maintain over the next two years.”

“We could raise the rating over the next 12 months if the company maintains its capital adequacy sustainably above the 99.8% confidence level according to our capital model, while maintaining strong operating performance and leading positions in the P/C insurance market in Azerbaijan,” S&P added.

PASHA Insurance has been operating in Azerbaijan’s insurance market since 2006 and is part of the PASHA Holding group.