A.M. Best Europe – Rating Services Limited has affirmed the
financial strength rating (FSR) of B++ (Good) and the issuer credit
rating (ICR) of “bbb” of SCHWARZMEER UND OSTSEE
Versicherungs-AktiengesellschaftSOVAG (SOVAG) (Germany). The
outlook for both ratings remains stable.
SOVAG’s ratings reflect its strong risk-adjusted capitalisation,
improving operating performance and good business profile as a
specialist insurer of Russian risks within Europe.
SOVAG’s risk-adjusted capitalisation remained strong in 2011 and is
expected to remain at a similar level for the coming year, supported by
full retention of earnings. The company’s capitalisation continues to be
enhanced by an equalisation reserve, which at the end of 2011 amounted
to EUR 36.5 million.
In 2011, SOVAG reported a small underwriting loss of EUR 0.9 million
(2010: EUR 13.3 million). The improvement in SOVAG’s technical
performance was supported by a substantial prior year reserve release,
as well as a better performance from the motor portfolio. The company
intends to introduce a new pricing structure for its motor portfolio
towards the end of 2012 (which represented 38% of net written premium
(NWP) at year-end 2011) and is currently reviewing loss making
contracts. These changes should lead to a gradual and sustained
improvement in SOVAG’s underwriting results. Given the company’s large
reserve release in 2011, it is unlikely that SOVAG’s technical
performance in 2012 will exceed the level of the previous year.
SOVAG maintains a niche position as a specialist insurer of risks
emanating from Russia and the Confederation of Independent States, as
well as a leading provider of insurance coverage for Russian immigrants
in Germany. In January 2012, SOGAZ Insurance CompanyOJSC
(SOGAZ) (Russia) increased its shareholding in SOVAG to 50.9% from 45.9%
to become the majority shareholder. To date, SOVAG has mainly marketed
its personal lines portfolio to Russian immigrants. However, the company
is now actively targeting non–immigrant Germans with its personal lines
products via small regional brokers. In 2012, with the implementation of
the new motor pricing structure and an increase in business written for
Russian companies with European interests facilitated by SOGAZ, NWP is
likely to increase from EUR 63.0 million, which was reported in the
Upward rating movement in SOVAG’s ratings could occur if there were
marked and sustained improvements in the company’s underwriting
performance, as well as its business profile. However, this would be
subject to the potential impact from SOGAZ’s ratings.
Downward rating movement in SOVAG’s ratings may be triggered if there
were a deterioration in technical and/or overall results and a material
decrease in risk-adjusted capitalisation. Additionally, negative rating
actions could occur if there were a deterioration in the FSR of B++
(Good) and ICR of “bbb” (with a stable outlook) of SOGAZ.
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. Key criteria
utilised include: “Catastrophe Analysis in A.M. Best Ratings”; “Risk
Management and the Rating Process for Insurance Companies”; “Rating
Members of Insurance Groups”; and “Understanding Universal BCAR”. 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:
Best Europe - Rating Services Limited Supplementary Disclosure.
A.M. Best Europe – Rating Services Limited is a subsidiary of A.M.
Best Company.Founded in 1899, A.M. Best Company is the world's
oldest and most authoritative insurance rating and information source.
For more information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS
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