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FOR IMMEDIATE RELEASE
LONDON - JULY 23, 2020 08:31 AM (EDT)
AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” of Russian Reinsurance Company JSC (Russian Re) (Russia). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Russian Re’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The company’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). An offsetting factor is the relatively low liquidity of Russian Re’s investment portfolio, with a quarter of invested assets held in real estate. Additionally, the company has a high dependence on a single reinsurer, with which it has a long-standing relationship. The associated credit risk is mitigated partially by the reinsurer’s excellent financial strength.
Russian Re’s operating performance is adequate, with the company reporting a five-year weighted average combined ratio of 92.2% and return on equity of 11.6% (2015-2019). Performance has been volatile over the past 10 years; however, results since 2016 have been good, reflecting corrective measures taken by management. Investment results have been positive in each of the past five years, albeit subject to fluctuations, particularly due to foreign exchange movements.
AM Best’s assessment of Russian Re’s business profile as limited stems from its relatively small size, with gross written premiums (GWP) of RUB 1,521 million (USD 24.6 million) in 2019, and its limited geographical diversification, with approximately 70% of GWP sourced from Russia and Commonwealth of Independent States. The company maintains a 3% share in the local reinsurance market and does not have an established profile in any of the international markets in which it operates. In 2019, the company reported strong growth in Russia and international markets and its medium-term plans include further growth in Asia Pacific and Latin America. In AM Best’s opinion, there is execution risk associated with Russian Re’s international expansion given the highly competitive conditions in the global reinsurance market and the company’s limited profile.
Russian Re’s ERM framework is evolving with certain elements not yet formalised. Risk management capabilities in some areas have not moved in line with the company’s risk profile, particularly in view of expansion into foreign markets and developments in the regulatory environment in Russia.
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 Guide to 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.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.