S&P Global Ratings reveals 3 main risks for Azerbaijan’s insurance sector

The S&P Global Ratings has identified three main risks for Azerbaijan’s insurance sector, Report informs referring to the “Insurance Industry and Country Risk Assessment Update: April 2022.”

These risks include exposure to high-risk assets, muted premium growth prospects and macroeconomic risks.

High-risk assets typically include equities (listed and unlisted), real estate, fixed-income investments, or deposits in institutions that are rated 'BB+' or lower.

Muted premium growth prospects means the lack of potential for premium growth either because the market is mature or due to high inflation resulting in near-zero (or negative) real premium growth.

Macroeconomic risks - risk factor taking into account considerations such muted economic growth, recessionary environments, inflationary pressures, and foreign exchange risk.

S&P Global Ratings carried out insurance industry and country risk assessments (IICRAs) for 102 insurance sectors covering 52 countries and four global sectors.

The agency listed the key risks of each sector, which it classifies in 9 different categories.

“We assess country risk on a scale from strongest (very low risk) to weakest (very high risk). We assess industry risk on a four-point scale from low to high. Our analysis of industry risk addresses the level, volatility, and sustainability of profitability in a given industry sector. The primary factor in our industry risk analysis is an assessment of prospective profitability, supplemented by a holistic analysis of factors that, in combination, are likely to either support or threaten industry profitability prospects, such as barriers to entry, market growth prospects, product risk, and the institutional framework.”

According to the assessment, the country risk in Azerbaijan is high, and the industry risk is moderately high.

“The higher the risk, the greater the adverse impact on the business risk profile. The risks are categorized as 1-very low, 2-low, 3-intermediate, 4-moderately high, 5-high, or 6-very high,” reads the report.