NOVEMBER 22, 2019 09:35 AM (EST)
AM Best Revises Outlooks to Positive for AzRe Reinsurance, OJSC
FOR IMMEDIATE RELEASE
LONDON - NOVEMBER 22, 2019 09:35 AM (EST)
The revision of the outlooks to positive from stable reflects the gradual strengthening of AzRe’s balance sheet and AM Best’s expectation that the company’s risk-adjusted capitalisation will remain at the strongest level, supported by further improvements in its enterprise risk management (ERM) and capital management capabilities. AM Best expects internal capital generation, underpinned by strong operating results, to support business growth.
The ratings reflect AzRe’s balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and marginal ERM.
AzRe’s balance sheet strength is underpinned by consolidated risk-adjusted capitalisation that is at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as good quality retrocession and a conservative investment portfolio by asset type. An offsetting factor is the company’s exposure to the high financial system risk in Azerbaijan, resulting in its bond portfolio having a non-investment grade credit quality. During 2019, AM Best expects AzRe to further substitute cash and deposits held with local banks with government bonds, with a small proportion of the portfolio invested in U.S. T-bills.
AzRe has achieved strong operating results in recent years, as demonstrated by a five-year weighted average combined ratio of 50%, and a return on capital and surplus of 23.6% (2014–2018). Operating performance benefits from relatively low loss ratios in Azerbaijan and from high investment yields reflective of the country’s high interest rate environment. Prospective performance may be subject to volatility due to potential exposure to large losses and the evolving operating environment in Azerbaijan.
AzRe is one of the leading players in the local (re)insurance market where it benefits from its profile as Azerbaijan’s only specialised reinsurer. Negatively affecting AM Best’s assessment of the company’s business profile is its highly concentrated portfolio, by geography and line of business, with a significant share of gross written premium derived from personal accident business, as well as its small size by international standards. AzRe has taken steps to improve its portfolio diversification by developing direct life and non-life insurance through subsidiaries and by expanding in foreign markets, mainly in the Middle East and former Soviet countries. AM Best believes that profitable expansion will be challenging, given the difficult operating conditions in Azerbaijan and the intense competition in the global reinsurance segment.
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AM Best is a global credit rating agency, news publisher and data provider specialising in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.