A.M. Best Assigns Ratings to SOGAZ, Insurance Company OJSC

LONDON--(BUSINESS WIRE)-- A.M. Best Europe – Rating Services Limited has assigned a financial strength rating of B++ (Good) and an issuer credit rating of “bbb” to SOGAZ, Insurance Company OJSC (SOGAZ) (Russia). SOGAZ is the operating holding company of the SOGAZ Group, which provides a range of insurance and non-insurance related services. The outlook assigned to both ratings is stable.

The ratings reflect SOGAZ’s strong competitive position as a commercial property insurer, good consolidated, albeit potentially volatile, risk-adjusted capitalisation and good technical performance. Additionally, SOGAZ’s ratings consider the high country risk associated with its operation in Russia and its strong relationship with its majority shareholder, Bank Rossiya, and OAO Gazprom (Gazprom), the world’s largest natural gas company.

SOGAZ operates as a leading insurer in Russia, writing a range of predominately short-tailed non-life commercial risks. The company benefits from strong competitive positions across its underwriting portfolio, particularly in relation to the property account, where it maintains a significant market share. The property account focuses on industrial, energy and other commercial business and represents approximately 50% of consolidated gross written premiums (GWP). SOGAZ’s market profile is supported by its more than 600 sales offices and regional branches across the Russian Federation and its long-term relationships with major Russian corporations. In particular, SOGAZ benefits from its strong relationship with Gazprom, as a former captive insurer of the organisation. Gazprom-related premiums accounted for 33% of consolidated GWP in 2011. Despite the strategy to reduce reliance on Gazprom-related business going forward, A.M. Best believes that SOGAZ’s underwriting portfolio will maintain sizeable concentrations to business derived from this source, at least in the medium term.

Although maintained at a good level, consolidated risk-adjusted capitalisation is likely to be subject to volatility going forward. This reflects SOGAZ’s material holdings of non-core (strategic) assets, accounting for 16% of shareholders’ funds at year-end 2011 (2010: 23%). SOGAZ’s investment portfolio comprises a high level of low credit quality assets (as measured under international standards), reflecting the limited investment opportunities in Russia, and large concentrations of deposits in major Russian banks, including banking affiliates. Risk-adjusted capitalisation is also exposed to major losses arising from the largely industrial and energy focused property portfolio. However, this risk is tempered by a prudent reinsurance programme that is largely placed with international reinsurers which maintain secure ratings.

Despite weak pricing conditions for the Russian commercial lines sector, technical results remain good, as demonstrated by a five-year average combined ratio of 91%. With the exception of voluntary medical insurance (accounting for approximately 30% of consolidated GWP), performance typically has been supported by profits from most classes of business. For 2012, a further improvement in the combined ratio is expected, partly due to corrective actions taken to reduce poor claims experience arising from certain policies, including those affected by the weather-related events of 2010.

Although Bank Rossiya maintains a good business profile in Russia, A.M. Best considers the bank to maintain a vulnerable credit profile (as determined under international standards) and exposure to the high financial system risk associated with the local banking sector. Although there are risks to SOGAZ’s financial strength arising from the bank’s credit profile, A.M. Best believes that SOGAZ’s financial strength is likely to be sustained through its strategic partnership with Gazprom. In addition to being SOGAZ’s largest single-name underwriting exposure, Gazprom (including associates) has a 24% shareholding in the company and maintains significant influence on the Board of Directors, occupying three seats out of seven (Bank Rossiya maintains two seats). Gazprom maintains a secure credit profile.

A.M. Best does not expect positive rating actions in the near term. Negative rating actions could occur if there was deterioration in consolidated risk-adjusted capitalisation due to a rise in SOGAZ’s investment risk profile or lower than expected operating performance. Deterioration in country risk fundamentals also could have a negative impact on SOGAZ’s ratings. Additionally, a rise or decline in Gazprom’s or Bank Rossiya’s credit profile is also likely to have a positive or negative impact on SOGAZ’s ratings.

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: “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Analysis in A.M. Best Ratings”; “Evaluating Country Risk”; “Risk Management and the Rating Process for Insurance Companies”; and “Rating Members of Insurance Groups”. 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: A.M. 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 RESERVED.

A.M. Best Company
Deniese Imoukhuede, +(44) 207 397 0277
Senior Financial Analyst
[email protected]
or
Carlos Wong-Fupuy, +(44) 20 7397 0287
Senior Director
[email protected]
or
Rachelle Morrow, +(1) 908 439 2200, ext. 5378
Senior 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 Europe – Rating Services Limited