LONDON (Standard & Poor's) Aug. 12, 2009--After a decade of almost uninterrupted economic growth of about 10% annually, the Republic of Kazakhstan (foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A-3) is today suffering the combined effects of protracted weakness in its banking sector since 2007, and a subsequent fall in world prices for many of its key commodity exports, Standard & Poor's Ratings Services noted in a report published today titled “Kazakh Insurance Market Is Not Immune To Global Crisis, But Long-Term Prospects Remain Bright”.
"These exports comprise oil and gas, but also substantial amounts of ferrous and nonferrous metals, chemicals, grain, wool, meat, and coal," said Standard & Poor's credit analyst David Anthony. "Economic growth fell to a little over 3% in 2008, and Standard & Poor's now believes the Kazakh economy is likely to contract by 3% in 2009," he added. The local currency, the Kazakhstani tenge (KZT), was devalued by 30% in February 2009, and we anticipate the current economic contraction to be accompanied by relatively high inflation, now approaching 8.5% for January-June 2009, and growing unemployment, which stood at 6.9% as of end-march 2009.
The local insurance sector has not proven immune to the state of the wider, macroeconomic situation and, having grown substantially during the "good" years, has contracted by 10% in 2008 in gross premium terms, and has further declined by 30% in the five months to May 31, 2009, relative to the same period last year.
"Prospectively, we believe economic growth in Kazakhstan will resume as world commodity prices rise," said Mr. Anthony. We also think the eventual economic recovery will likely result in increased levels of insurable activity. This will probably create long-term opportunities for the dozen or so insurers with a long-term commitment to the local insurance sector that can be identified among the 45 companies currently established in Kazakhstan.
We expect that possibilities will also reopen for any new entrant to the sector that can bring a combination of expertise, professionalism, and new products, in addition to a reasonable capacity to underwrite risk.