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FOR IMMEDIATE RELEASE
LONDON - OCTOBER 16, 2015 10:59 AM (EDT)
A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of AzRe Reinsurance, OJSC (AzRe) (Azerbaijan). The outlook for both ratings remains stable.
The ratings of AzRe reflect its strong consolidated risk-adjusted capitalisation and operating performance, as well as its solid business profile as the sole reinsurer in Azerbaijan’s domestic market. Partly offsetting these factors are the high concentration risk inherent within the group’s underwriting and investment portfolios, its volatile technical results and the increased financial system risk resulting from the challenging economic conditions arising in Azerbaijan.
AzRe’s strong consolidated risk-adjusted capitalisation reflects its low net underwriting leverage. In 2014, AzRe reported shareholders’ funds of AZN 65 million (approximately USD 62 million) relative to net written premiums of AZN 56 million (approximately USD 53 million). The company’s balance sheet remains supported by the high credit quality of its reinsurance panel and prudent investment strategy, with over 90% of investments in cash and bank deposits. However, AzRe maintains material concentration to certain financial institutions in the country, exposing the group to the increased financial system risk of Azerbaijan. A.M. Best expects AzRe’s consolidated risk-adjusted capitalisation to remain supportive of its expansion plans.
AzRe’s produced a return on equity of 37.9% in 2014 (2013: 17.1%), underpinned by a combined ratio of 32.9% (2013: 83%) and investment returns (including gains and losses) of 4.1% (2013: 8.3%). Net earnings were supported by material reserves releases of AZN 11.5 million (representing 20.4% of net earned premiums), mainly due to the positive settlement of a significant property claim. Additionally, results benefited from the absence of large insurance claims during the year, although partly offset by unrealised losses of AZN 0.9 million (2013: gain of AZN 0.8 million) arising from impairment provisions established for AzRe’s exposure to the local banking sector.
For the first half of 2015, AzRe reported a 24% decline in consolidated earnings compared with the same period of 2014, mainly due to the reduced contribution from the life portfolio owing to a high level of policy cancellations. Despite the volatility inherent in AzRe’s technical results, A.M. Best expects near-term operating results to remain at a strong level, reflecting the underlying low loss activity in Azerbaijan compared with more mature insurance markets.
AzRe maintains a solid business profile as the only pure domestic reinsurer in Azerbaijan. Leading the reinsurance market with a 50% share in 2014, AzRe underwrites a portfolio of mainly short-tailed risks sourced predominantly in Azerbaijan. Despite some progress diversifying its business in recent years, material concentration risk remains within the group’s reinsurance portfolio, with personal accident representing 38% of AzRe’s business portfolio in 2014 (2013: 62%). Reduced insurance demand due to the economic slowdown in Azerbaijan could constrain AzRe’s growth plan prospectively.
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 press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best’s Ratings & Criteria Center.
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