Press Release - OCTOBER 17, 2014

A.M. Best Assigns Ratings to AzRe Reinsurance, OJSC

Valeria Ermakova
Financial Analyst, Analytics
+(44) 20 7397 0269

Deniese Imoukhuede
Associate Director, Analytics
+(44) 20 7397 0277

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


A.M. Best has assigned a financial strength rating of B+ (Good) and an issuer credit rating of "bbb-" to AzRe Reinsurance, OJSC (AzRe) (Azerbaijan). The outlook assigned to both ratings is stable.

The ratings of AzRe reflect its strong risk-adjusted capitalisation and operating performance, as well as its solid profile as the sole reinsurer in the domestic market. Partly offsetting these factors are the high concentration risk inherent within AzRe's underwriting portfolio and the execution risk associated with the company's expansion strategy.

AzRe's strong risk-adjusted capitalisation reflects its low net underwriting leverage. In 2013, AzRe reported shareholders' funds of AZN 49 million (USD 62 million) relative to net written premiums of AZN 39 million (USD 50 million). The company's balance sheet strength is further supported by the high credit quality of its reinsurance panel and its conservative investment strategy, with over 90% of investments in cash and bank deposits. Going forward, AzRe's risk-adjusted capitalisation is expected to remain supportive of its expansion plans, with an average annual growth of approximately 10% in net premium volumes anticipated in the near term.

AzRe's operating performance is strong, although it has diminished over the past five years, as demonstrated by a return on equity of 17.1% in 2013, compared with 129.3% in 2009. AzRe's results have been affected by an increase in its loss and expense ratios as the company has expanded into lines of business with lower technical margins. Additionally, in more recent years, AzRe has been affected by large single risk losses on the property account, which has resulted in a deterioration of the combined ratio to 83% in 2013 (2012: 80.1%; 2011: 48.1%). Nonetheless, A.M. Best expects near-term operating results to remain at a strong level, reflecting the underlying low loss frequency in Azerbaijan compared with more mature insurance markets.

AzRe maintains a solid business profile as the only pure domestic reinsurer in Azerbaijan. The company has a 12% share of the whole insurance and reinsurance market and underwrites a portfolio of mainly short-tailed risks sourced predominantly from the domestic market.

A negative rating factor is the high concentration risk inherent in AzRe's underwriting portfolio. In particular, the company's business is dominated by personal accident insurance, which represents approximately half of its portfolio on a net basis. Additionally, uncertainty exists with AzRe's strategic plans to expand into overseas markets, primarily to the neighbouring former Soviet Union countries and the Middle East. A.M. Best believes that AzRe faces significant challenges with the execution of its strategy due to the highly competitive environment and AzRe's limited profile and expertise in these markets. However, it is understood that AzRe's overseas expansion will be undertaken on a conservative basis.

Positive rating actions are unlikely in the near term. Negative rating actions could occur if AzRe experiences deterioration in its risk-adjusted capitalisation or operating performance, particularly due to its expansion plans outside of Azerbaijan.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at

Key insurance criteria reports utilised:

  • Catastrophe Analysis in A.M. Best Ratings

  • Evaluating Country Risk

  • Risk Management and the Rating Process for Insurance Companies

  • Rating Members of Insurance Groups

  • Understanding BCAR for Property / Casualty Insurers

  • Understanding Universal BCAR

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure .

This rating announcement has been issued by A.M. Best Europe - Rating Services Limited, which is a subsidiary of A.M. Best Company.

Related Companies

For information about each company, including the Best's Credit Reports, group members (where applicable) and news stories, click on the company name. An additional purchase may be required.

AMB# Company Name
093787 AzRe Reinsurance, OJSC
093707 AzRe Reinsurance, OJSC