Best’s News & Research Service - August 04, 2021 03:10 PM (EDT)
AM Best Revises Outlooks to Positive for Russian Reinsurance Company JSC
- August 04, 2021 03:10 PM (EDT)
London //BestWire// - AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” (Fair) of Russian Reinsurance Company JSC (Russian Re) (Russia).
The Credit Ratings (ratings) reflect Russian Re’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The revision of the outlooks to positive reflects the improvement in Russian Re’s operating performance observed over the past five years and AM Best’s expectation that stronger performance will be maintained, supported by sound underwriting practices.
Russian Re’s balance sheet strength is underpinned by its 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 the company’s investment portfolio, with 19% 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.
Performance over the past 10 years has been volatile. However, results since 2016 have been good, with the company reporting a five-year weighted average combined ratio of 84.3% and return on equity of 18.5% (2016-2020). AM Best expects good overall underwriting performance to be maintained, despite the execution risk associated with planned growth in foreign markets. 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 premium (GWP) of USD 24.6 million in 2020, and its limited geographical diversification, with approximately 60% 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 2020, the company reported strong growth in Russia and international markets and its medium-term plans include further growth in Asia Pacific and Latin America.
Russian Re’s ERM framework is evolving with certain elements not yet formalised. Risk management capabilities are aligned largely with its risk profile. Risk associated with expansion in foreign markets is mitigated partly by selective underwriting, with a focus on the type of property and engineering risks that are familiar to the company.
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 use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.