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FOR IMMEDIATE RELEASE
LONDON - JUNE 28, 2019 09:22 AM (EDT)
AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” of INSURANCE COMPANY OF GAZ INDUSTRY SOGAZ (SOGAZ) (Russia). The outlook assigned to these Credit Ratings (ratings) is stable.
These rating actions follow the close of SOGAZ’s transaction with the VTB Group in November 2018, whereby SOGAZ acquired VTB Insurance Limited (VTB Insurance) and its subsidiaries, including VTB Life Insurance, JSC, and the conclusion of AM Best’s assessment of the impact of the deal on SOGAZ’s credit fundamentals.
The ratings reflect SOGAZ’s balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
SOGAZ is a market-leading insurance group in Russia, with a dominant share in the commercial lines segment. In AM Best’s view, the acquisition of VTB Insurance has improved the group’s market position, product diversification and distribution, particularly in the personal lines segment. Based on the 2018 results of both insurance groups, their combined market share of the non-life and life markets in Russia (as measured by gross written premiums) was 28% and 12%, respectively. However, AM Best notes that the group is subject to heightened operational and execution risk associated with the integration of VTB Insurance into SOGAZ. Management’s experience and track record with acquisitions mitigates this risk to some extent.
SOGAZ’s balance sheet strength is underpinned by post-acquisition risk-adjusted capitalisation that is categorised as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR), at year-end 2018. The acquisition led to a reduction in risk-adjusted capitalisation and an erosion of the significant capital buffer that was available previously to absorb the group’s elevated exposure to political and financial system risk, due to its concentration to the Russian state and state-owned enterprises. AM Best expects a gradual recovery of the buffer over the next few years, driven by strong earnings and an adequate level of profit retention. The group’s investment quality is a constraining rating factor, as approximately 40% of the fixed income portfolio was sub-investment grade at year-end 2018.
SOGAZ group has a track record of strong profitability, reflected in a five-year weighted average return on capital of 30%, underpinned by strong underwriting margins. AM Best expects the company’s prospective performance to remain strong, although it is likely to be dampened by integration costs over the near term.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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