AM Best keeps Russian Reinsurance’s B+ FSR

17 December 2009 - AM Best confirmed Wednesday its B+ (good) financial strength rating (FSR) and the "bbb-" issuer credit rating on Russian Reinsurance Co (Russian Re).

The outlook is "stable".

The ratings reflect the company's small size, as this poses a challenge especially since it operates in a highly competitive operating environment, the agency said. However, Russian Re's operating performance will improve in 2009, and the company benefits from good risk-adjusted capitalisation, the rater added.

Russian Re's gross written premiums (GWP) are likely to show moderate growth over the next year and reach between RUB 450m (USD14.8m/EUR10.3m) and RUB480m.

According to AM Best, this is relatively small by international standards, and the company is met with significant challenges in growing its domestic market presence as it faces intensified competition from both local and international reinsurers.

Its strategy to expand internationally with a focus in the Middle East and North African markets, as well as in selected markets of the Commonwealth of Independent States, is likely to start bearing fruits from 2010, despite the fact that these are target markets for other emerging markets' reinsurers, the analysts said.

AM Best believes that Russian Re's pre-tax profits are likely to remain relatively stable over the next couple of years following the deterioration in 2008, which was driven by the challenging economic conditions and the resulting increase in combined ratio.

Russian Re's combined ratio is likely to be in the mid-90% range, as the claims ratio improves slightly due to the lack of attritional losses that impacted performance in 2008 when the company suffered from a series of these losses. The rater also considers that investment yield is likely to remain a robust 5%-6%, which is particularly impressive, given the company's conservative investment portfolio.

AM Best believes that Russian Re's risk-adjusted capitalisation will remain strong as the impact of the moderate premium growth is supported by the company's non-dividend policy.

Retained earnings are likely to be augmented by the reduction of the corporate tax rate in Russia from 24% to 20%, the agency added.

Financial flexibility is very good for a company of Russian Re's size, given the significant participation of international professional insurers in the company's shareholding and the lack of financial leverage, the rater elaborated.

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