Fitch upgrades Kafolat Insurance to BB- with positive outlook

Tashkent, Uzbekistan (UzDaily.uz) — Fitch Ratings has upgraded the Insurer Financial Strength Rating (IFSR) of JSC Kafolat Insurance Company from B+ to BB-. The outlook on the rating is positive.

The upgrade is driven by improvements in the company's business profile, reflected in increased geographical diversification, a strengthened capital base, and an enhanced risk profile. Additional positive factors include a conservative investment strategy, improvements in reserving practices, and progress in natural catastrophe risk modeling.

The positive outlook reflects the potential for further improvement in the company's business profile and assessments of investment and asset risk — particularly in the event of an upgrade to the industry profile and operating environment (IPOE) range and the sovereign rating of Uzbekistan, both of which also carry a positive outlook.

Fitch assesses Kafolat's business profile as one of the strongest among Uzbekistani insurers. The company possesses an established domestic franchise and actively participates in inward reinsurance. Geographical diversification improved following a systematic reduction of exposure to US risks during 2024–2025. In addition to its core property portfolio, the company writes liability, motor, accident and health, and financial risks insurance; its life insurance subsidiary contributes further to the group's diversification.

At the end of 2025, the company's capital position was assessed as "Strong" under the Prism model — compared to "Adequate" at the end of 2024 and "Somewhat Weak" at the end of 2023. Low net leverage (2.8x), gross leverage (5.8x), and a regulatory solvency ratio of 195% as of the end of the first quarter of 2026 further confirm the solidity of the capital base. Fitch also believes the company's capital is sufficient to comply with the rising minimum capital requirements for reinsurers in Uzbekistan.

Kafolat's financial metrics remain good by local market standards, though earnings exhibit volatility. Return on equity based on net profit stood at 14% in 2025 — a decline from an exceptionally high level of 64% in 2024 due to foreign exchange losses, higher underwriting volatility, and the impact of insurance finance expenses under IFRS 17. Nevertheless, underwriting performance remained strong, with a combined ratio of 74% in 2025.

Rating-Appropriate Asset Quality

The investment portfolio is concentrated in cash and bank deposits — primarily in state-owned or large private domestic banks, most of which hold ratings close to the sovereign level. Risky assets remained low at 2.6% of capital at the end of 2025. Constraining factors include the narrowness of the domestic investment market and a concentrated exposure to a single unrated mid-tier bank.

Kafolat is among the few insurers in the market that calculate non-life insurance reserves based on the best-estimate method. Under IFRS 17 reporting, liabilities for incurred claims are evaluated by discounting expected cash flows and applying a risk adjustment for non-financial risk. Both the internal actuarial model and IFRS 17 calculations revealed a redundancy in reserves compared to local accounting standards.

For property and construction risks exceeding 1,300 billion soums, the company is protected by treaties with highly rated European reinsurers; since the beginning of 2026, Kafolat has also expanded its use of facultative reinsurance with international Category A counterparties. However, a significant portion of reinsurers continues to be represented by domestic companies with low credit quality, creating counterparty concentration risk. In 2024–2025, the reinsurance program proved effective, shielding the company from selected large losses.

Kafolat is one of the few insurance companies in the region that performs probable maximum loss modeling and actively manages its exposure to catastrophic risks. Based on 2025 modeling results covering earthquakes, storms, and floods, Fitch estimates that the net loss from a 1-in-250-year catastrophe event would amount to approximately 30% of the company's capital at the end of 2025.

A rating downgrade or an outlook revision to stable could occur in the event of a weakening business profile — for instance, an increase in risk concentration or an inability to maintain current capitalization metrics — as well as if the Prism model score sustained a decline below the "Adequate" level.

A rating upgrade could follow a further strengthening of the company's business profile while maintaining good financial metrics and sufficient capitalization.