A.M. Best Affirms Ratings of Russian Reinsurance Company JSC

LONDON--(BUSINESS WIRE)-- A.M. Best has affirmed the financial strength rating of B+ (Good) and the issuer credit rating of “bbb-” of Russian Reinsurance Company JSC (Russian Re) (Russia). The outlook for both ratings is negative.

The negative outlook on Russian Re’s ratings continues to reflect the company’s underwriting losses, which have partly contributed to weakening risk-adjusted capitalisation, thus eroding the capital buffers available to absorb unexpected losses arising from Russia’s heightened country risk.

Russian Re’s underwriting results remain affected by expense pressures and the impact of deteriorating pricing conditions on reducing technical margins, both in its core and international markets. Additionally, in 2015 Russian Re’s technical earnings are likely to be affected by the conversion of U.S. Dollar-denominated premiums and claims to the company’s reporting currency, following further depreciation of the rouble during the year. However, overall operating performance in 2015 is likely to be supported by significant exchange rate gains, owing to the company’s material holdings of U.S. Dollar-denominated investments.

Russian Re’s risk-adjusted capitalisation has eroded significantly over the past few years, as rapid expansion in business volumes has not been supported by a commensurate level of growth in available capital. The combination of both elements has eroded the inherent capital buffers available to cushion against unexpected losses. Although the company’s risk-adjusted capitalisation remains at an adequate level for its ratings, A.M. Best maintains some concerns regarding the medium term prospects for Russian Re’s balance sheet strength. This reflects the increasing asset risk exposure, uncertainty associated with the further devaluation of the rouble and its effect on premium growth, and the impact of inflationary pressures on reserve adequacy.

As a result of Russia’s ongoing difficulties, Russian Re will be expected to demonstrate a substantial strengthening of its underwriting framework and implement a capital management strategy that supports its ratings fundamentals going forward. A.M. Best expects to see in 2016 a continued reversal in the trend of the company’s weak underwriting results and deteriorating risk-adjusted capitalisation, to alleviate the significant negative pressures underpinning its ratings. A.M. Best will continue to closely monitor Russian Re’s performance throughout 2016.

Russian Re’s competitive standing is hindered by its small size (by international standards), with projected gross written premiums of around RUB 865 million (approximately USD 10 million) anticipated in 2015. In addition to the company’s plans to expand outside of Russia and the former Soviet Union countries, with Asia Pacific, the Middle East and North African markets remaining as key growth drivers, Russian Re is expected to target growth in selected domestic market segments. Despite the company having a track record of reporting positive, albeit volatile, operating profits, A.M. Best believes that Russian Re will likely continue to face significant challenges in growing profitably both in its domestic and foreign markets as a result of increased competition.

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 see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160219005832/en/

A.M. Best Company, Inc.
Pablo Vasquez, +(44) 20 7397 0311
Financial Analyst
[email protected]
or
Deniese Imoukhuede, +(44) 20 7397 0277
Associate Director, Analytics
[email protected]
or
Christopher Sharkey, +(1) 908 439 2200, ext. 5159
Manager, Public Relations
[email protected]
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]

Source: A.M. Best Company, Inc.

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