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FOR IMMEDIATE RELEASE
LONDON - JUNE 13, 2014 12:47 PM (EDT)
A.M. Best has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of "bbb" of OJSC INSURANCE COMPANY OF GAZ INDUSTRY SOGAZ (SOGAZ) (Russia). The outlook for both ratings is stable. SOGAZ is the ultimate parent of the SOGAZ Group, which provides a range of insurance and non-insurance related services.
The ratings of SOGAZ reflect its good consolidated risk-adjusted capitalisation, consistently strong operating results and robust competitive position as a commercial property insurer. A partly offsetting factor is SOGAZ's relatively high investment risk strategy.
A.M. Best has reviewed the implications of the recent sanctions imposed by the European Union and U.S. Treasury on key individuals and organisations within the Russian economy, including those imposed by the latter on Bank Rossiya, which has a significant, but minority, shareholding in SOGAZ. These sanctions are not considered to have an immediate effect on the financial strength of the group. Nonetheless, their long-term implications on the macroeconomic conditions in Russia remain an area of uncertainty for SOGAZ.
SOGAZ's consolidated risk-adjusted capitalisation remains at a good level, despite the group's significant growth in recent years. In 2013, SOGAZ reported growth in gross written premiums (GWP) of 11% to RUB 92 billion, compared with a 14% rise in shareholders' funds to RUB 49 billion. The retail and regional portfolio remains the group's focus for expansion, albeit at a slower pace, due to the challenging market conditions for the sector. A.M. Best will continue to monitor the performance associated with these segments.
SOGAZ's relatively high investment risk strategy remains a weakness in A.M. Best's assessment. In particular, SOGAZ's material holdings in non-core strategic assets remain a source of potential volatility to risk-adjusted capitalisation, owing to their illiquid nature. In 2013, equities and property investments combined accounted for 43% of shareholders' funds.
SOGAZ's combined ratio increased to 93.2% in 2013, compared with 87.4% the previous year, mainly due to a rise in expenditure associated with the group's expansion outside of the corporate segment, in addition to the centralisation of the claims and finance functions. Although expenses are likely to remain elevated in the medium term, overall earnings are expected to be sustained by the robust performance of the group's corporate portfolio.
Positive rating actions could occur if SOGAZ continues to produce strong operating results whilst maintaining risk-adjusted capitalisation at a supportive level. Additionally, further strengthening of SOGAZ's risk management framework, along with a sustained reduction in its investment risk profile, will support upward rating pressure.
Negative rating actions could occur if there were a deterioration in SOGAZ's operating performance or a rise in the group's investment risk profile to a level outside of A.M. Best's expectation. Erosion in consolidated risk-adjusted capitalisation due to excessive growth, or payment of dividends to a level that is higher than expected could also result in downward rating pressure. Additionally, further decline in the economic environment in Russia could negatively affect SOGAZ's ratings.
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 www.ambest.com/ratings/methodology.
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. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.