AM Best has affirmed the Financial Strength Rating of B- (Fair) and the Long-Term Issuer Credit Rating of "bb-" of Rosgosstrakh Insurance Company, OJSC (RGS) (Russia). The outlook of these Credit Ratings (ratings) is stable. Concurrently, AM Best has withdrawn the ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings reflect RGS’s balance sheet strength, which AM Best categorises as adequate, as well as its marginal operating performance, neutral business profile and marginal enterprise risk management (ERM).
AM Best expects RGS’s risk-adjusted capitalisation to be at the strongest level at year-end 2020, as measured by the Best’s Capital Adequacy Ratio (BCAR). However, AM Best expects the company’s prospective risk-adjusted capitalisation to deteriorate due to its ambitious premium growth plans and the payment of dividends in the medium term. The balance sheet strength assessment also reflects the insurer’s conservative investment portfolio, which improved significantly in terms of credit quality, diversification and exposure to affiliated holdings after RGS’s ownership was transferred to Bank Otkritie Financial Corporation PJSC. Nonetheless, RGS’s balance sheet is exposed to the high financial system risk in Russia and the limited availability of high-quality securities. The company’s financial flexibility is adequate, supported by its association with The Central Bank of the Russian Federation (CBR).
RGS has a track record of poor technical performance, driven by losses in the compulsory motor third-party liability (CMTPL) portfolio and demonstrated by a five-year (2015-2019) weighted average combined ratio of 118.2% (as calculated by AM Best). Underwriting performance improved between 2018 and 2020, helped by the remediation of the CMTPL portfolio and improved risk selection across the book initiated by the new management team. In addition, the performance of the motor portfolio in 2020 benefited from COVID-19-related travel restrictions, mainly in the second quarter. Whilst AM Best expects RGS’s overall operating results to be positive going forward, there is potential for the motor loss ratio to deteriorate given the segment’s intense competition, combined with the company’s plans to grow ahead of the market.
RGS is one of Russia’s leading insurers, with a strong market position in personal lines that benefits from an extensive distribution network and a well-recognised brand. In 2017, RGS received a capital injection of approximately USD 2 billion from the CBR, which became its controlling party. The company plans to grow strongly in the motor segment and to expand its life book of business. In AM Best’s opinion, the successful implementation of the company’s strategy is subject to execution risk.
AM Best considers RGS’s ERM as marginal, with new organisational structures and frameworks being developed in order to improve governance and risk culture.
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