KazakhExport began transferring part of the risks to Switzerland | Company News | Export insurance company «KazakhExport»

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KazakhExport began transferring part of the risks to Switzerland

One of the largest reinsurance companies in the world, the Swiss Reinsurance Company, has started cooperation with KazakhExport in the field of reinsurance of risks, which the Kazakhstan export credit agency accepts by supporting exporters. What is the significance of this for the financial market of our country, and how it will affect the export of the country, are told by the managers of the national company, Deputy Chairman of the Board Kuanysh Mukazhanov, and Director of the Reinsurance Department Assem Moldabayeva.

Journalist:

- What made KazakhExport look for reinsurance partners?

Mukazhanov:

- From year to year, we increase the volume of insurance support for exports. If in 2017 we accepted 40 billion tenge of insurance liabilities, in 2020, despite the pandemic, we accepted 134 billion tenge, then this year we hope to accept more than 200 billion tenge. Moreover, the nature of insurance risks is changing. The term of insurance contracts is getting longer on average, and in addition, the assortment in terms of products is expanding. If earlier we accepted the risks of exporters only under concluded contracts or helped exporters to resolve the issue of replenishment of working capital, now we also help exporters to expand production capacity and even create new products. All this affects the size and structure of the current portfolio. Today it already amounts to 263 billion tenge. Consequently, this raises a big question about the size of our insurance capacity, that is, the ability to accept new risks without losing our stability. It is known that since the very formation of our organization, for 16 years we have confirmed the international credit rating of the Moody's agency twice a year. It has always been at the level of the sovereign rating of our country. Looking at the rating, exporters, banks, and other financial institutions that receive insurance from us remain confident that we will be responsible for our obligations. However, in order to maintain the rating, due to the rapid growth of the insurance portfolio, we need to constantly address issues with the increase in our insurance capacity. And we solve this issue in three ways. The first way is to increase the authorized capital. Over the past five years, we have been capitalized almost 10 times. The second method is to obtain a state guarantee for our obligations. This guarantee involves the allocation of money by the government in the event that the company's capital is not sufficient to respond to realized insured events. The third option is to transfer part of the risks to reinsurance. This will free up some of the insurance capacity.

Besides, the sharing of risks, the exchange of risks through reinsurance is expedient in terms of diversification and balance of the insurance portfolio, even when there is no question of free insurance capacity. This is an international practice that, over many decades of its existence, has proved to be justified when reinsurance helped insurance companies withstand major crises. Given that we accept credit risks, this is most relevant for us.

Journalist:

- Assem, what is the peculiarity of obligatory reinsurance?

Moldabayeva:

- Reinsurance in the activities of insurance companies is one of the important areas. When choosing an insurance company, an exporter or any organization must consider many factors: the reputation of the insurer, the amounts of insurance premiums and the procedure for their payment, the availability of a license, the amount of own funds, and the paid share of the authorized capital of the insurer company, etc. Only a few clients, especially when insuring large or complex risks, are interested in whether the insurer will conclude a reinsurance contract, and if so, with whom and on what terms. After all, the reinsurer with its reserves supports the cedent in fulfilling its obligations to the client.

Obligatory reinsurance is a form of reinsurance based on an agreement that binds the transmitting and receiving parties with the obligation to reinsure and accept all risks in accordance with the provided portfolio, based on the coverage conditions and the limit of the obligatory agreement. Or in other words, obligatory reinsurance allows you to quickly, one might say “automatically”, without any underwriting in the reinsurer's office to divide the risks across the entire insurance portfolio. That is, the reinsurer in this case fully trusts the cedent company that it has qualitatively carried out its underwriting and assessed all the risks, and undoubtedly assumes some of these risks almost immediately after the conclusion of each new insurance contract.

Obligatory reinsurance brings a lot of benefits and advantages for us. As Kuanysh said, firstly, this is an improvement in the financial performance of the company, and in particular, its solvency. Secondly, it is the presence of an automatic capacity for prompt decision-making on risk insurance. KazakhExport receives a guarantee that all insurance contracts concluded by it that meet the terms of the agreement with the reinsurer will be automatically reinsured. Even before the conclusion of an insurance contract, the risk of non-reinsurance of obligations under it is excluded. Thirdly, with obligatory reinsurance, we contribute to the preservation of commercial secrecy, as it is not necessary to provide the reinsurer with detailed information about each insurance contract concluded. Fourth, the protection of our clients is improved as the reinsurer has a higher rating. Swiss Re ratings: AA- (very strong) on the Standard & Poor’s scale, A + (superior) on the A.M. Best rating scale, and Aa3 (excellent) on Moody's. In addition to the above, we slightly reduce the operating load and overhead costs of reinsurance.

Journalist:

- Well, now it is clear why reinsurance is so important to you. But there are many insurance companies in Kazakhstan, and even KazakhExport is not the largest of them. Why not transfer the risks to them for reinsurance?

Assem Moldabayeva:

- In practice, the conclusion of obligatory reinsurance contracts in Kazakhstan and in the foreign market is a relatively difficult procedure, due to the complexity of risk assessment and other technical aspects. In the activities of the KazakhExport, which uses financial instruments with the support of exporters, the transfer of an insurance portfolio of loans, letters of credit, export loans, and short-term receivables is complicated by the structure of the products themselves. For domestic insurance companies in the “General Insurance” industry, financial risks are not a priority, and as a result, they do not show interest in such products. In addition, it is difficult for them to carry out the underwriting of credit risks today. For this, there are no experts on the staff, as it is simply not their business. For this reason, KazakhExport continued to hold the portfolio on its own, while trying to find partners.

Journalist:

- Was it difficult to find them?

Assem Moldabayeva:

- The employees of the reinsurance department have been working on the issue of transferring the portfolio to the foreign market for almost two years. The pandemic has also made its own adjustments to the processes of negotiations and meetings. The last "live" meetings of KazakhExport representatives with Western reinsurers were held in early 2020. At that time, an agreement was reached with one of the world's largest brokers, AON, to place our obligatory program, which at that time had a positive experience in placing financial risks for insurance companies and export credit agencies in many countries. From the beginning of 2020 until recently, work was carried out online: negotiations, constant correspondence, product presentations, numerous questions from the broker and reinsurers on the one hand, and answers from KazakhExport employees on the other. For a year and a half, the employees of the reinsurance department carried out thorough, diligent, and rather time-consuming work on providing various information on the insurance portfolio, terms of contracts, statistics, filling out profiles for the broker, and reinsurers. This work led to a positive result in August of this year, and we were able to obtain consent to conclude an obligatory reinsurance agreement with Swiss Reinsurance Company insurance of loans, export credits, and short-term receivables covering the territories of export of domestic producers. It should be noted that this is the first obligatory program in the history of the insurance market of Kazakhstan that covers such specific credit risks.

Journalist:

- Kuanysh, as I understand it, is a very significant event in the history of KazakhExport?

Kuanysh Mukazhanov:

- You've got that right! We regard this as a recognition of our professionalism on the part of the Western market. The reinsurer Swiss Reinsurance is one of the ten largest reinsurance organizations in the world has been operating since 1863 (158 years old) with its head office in Zurich.

Accepting risks under an obligatory agreement means taking them "blind," that is, it means complete trust in us, our risk assessment, underwriting, and tariff setting systems. Swiss Re has made sure that our procedures, business processes, and underwriting consistently contribute to keeping the loss ratio low. Within the country, we have almost no one to learn from the experience, and we are developing with a look at export credit agencies of far abroad. Now we are once again convinced that we are doing everything right.

The conclusion of an obligatory reinsurance contract with Swiss Reinsurance strengthens the financial stability of the KazakhExport, leads to the expansion of the company's opportunities in the foreign market, reduces the burden on the portfolio, and increases the coverage to support domestic exporters. Exporters of Kazakhstan and banks involved in export transactions only benefit from this cooperation, as the reliability of the insurance coverage they receive increases.