AM Best

A.M. Best Affirms Credit Ratings of AzRe Reinsurance, OJSC


George Athanasopoulos
Financial Analyst
+44 20 7397 0330

Catherine Thomas
Senior Director, Analytics
+44 20 7397 0281

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


LONDON - OCTOBER 21, 2016 08:43 AM (EDT)
A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of AzRe Reinsurance, OJSC (AzRe) (Azerbaijan). The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect AzRe’s excellent risk-adjusted capitalisation, strong operating performance and solid domestic business profile as the leading reinsurer in Azerbaijan.

AzRe has achieved consistently strong underwriting and investment results, reflected in a five-year average return on capital and surplus of 22.6%. Risk-adjusted capitalisation is expected to remain at a strong level, in spite of planned growth, supported by good internal capital generation.

Offsetting these rating strengths is the concentration risk inherent within the group’s underwriting and investment portfolios, as well as increased financial system risk resulting from Azerbaijan’s challenging economic conditions.

AzRe has a strong position as the sole domestic reinsurer in Azerbaijan with a market share of 38% in 2015. Reduced insurance demand due to the economic slowdown in Azerbaijan has had a limited negative impact on AzRe’s gross written premium (GWP), which fell by only 1.4% in 2015. The company underwrites a portfolio of mainly short-tailed risks predominantly sourced locally. AzRe has made significant progress in diversifying its business in recent years; however, concentration risk remains within its reinsurance portfolio, with personal accident business representing 40% of reinsurance GWP in 2015 (2014: 46%).

AzRe’s strong consolidated risk-adjusted capitalisation reflects its low net underwriting leverage. In 2015, the company reported shareholders’ funds of AZN 81.1 million and net written premiums of AZN 68.2 million. AzRe’s balance sheet remains supported by the good credit quality of its reinsurance panel. The investment portfolio is concentrated, with over 90% of investments in cash and bank deposits in Azerbaijan’s financial institutions. This exposes the company to increased financial system risk.

Despite an increase in losses incurred in 2015, AzRe produced a strong combined ratio of 67.6%. The prior year’s record-low combined ratio of 37.9% benefited from material reserve releases and the absence of large claims.

The net investment return was strong in 2015 at 14.3% due to high interest income earned on the company’s deposits. However, this is reflective of the country’s high interest rate and inflationary environment. Significant currency devaluations have increased inflation to more than 10% thus far in 2016. A.M. Best will continue to monitor the impact of inflation and local economic developments on AzRe’s operating performance.

During the first half of 2016, AzRe’s consolidated premium income grew approximately 24% while net earnings increased 4% supported by low claims experience. 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 to that of more mature insurance markets.

Although AzRe has conservative plans to expand into neighbouring former USSR countries and the Middle East, A.M. Best believes that profitable growth will be difficult given the group’s limited profile and limited experience in these markets.

This press release relates to Credit Ratings 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 see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source.

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