Fitch withdraws SOGAZ rating
Baku, Fineko/abc.az. Fitch Ratings has affirmed Insurance Company of Gas Industry SOGAZ (Russia)s (SOGAZ) Insurer Financial Strength (IFS) rating at BB+ and National IFS rating at AA (rus), with Stable Outlooks.
The agency reports that at the same time Fitch has withdrawn the ratings as SOGAZ has chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings or analytical coverage for SOGAZ.
The affirmation reflects SOGAZs strong risk-adjusted capital position, improved profitability in 2011 and solid market position. Offsetting factors include the relatively weak credit quality of SOGAZs 51% majority (indirect) shareholder, Bank Rossiya, and SOGAZs significant placements with sub investment-grade issuers and notable, although declining, concentrated exposure to affiliated investments. The ratings also reflect certain weaknesses in corporate governance.
SOGAZ managed to strengthen its underwriting profitability in 2011 with the combined ratio improving to 90.7% from 99.8% in 2010. The improvement came from the loss ratio, which decreased to 66.5% in 2011 (2010: 76.7%), although around 7 pp of the decrease was fuelled by case reserves releases for catastrophic and single large losses in the property line, historically SOGAZs most profitable line. The releases had an offset effect against the increased pressure of claims incurred in 2010, which SOGAZ continued to settle during the course of 2011. While SOGAZ reacted on adverse claims development in the property line through rewording of contracts and tariff adjustments, the full effect of this response has yet to be fully seen.
Fitch continues to recognize SOGAZs underwriting expertise in the core commercial insurance segment as a positive rating factor and believes that SOGAZ retains its ability to earn profit through the underwriting activity at least while the insurer holds its current market position.
The insurers risk-adjusted capital position improved in 2011 owing to partially restored profitability. Based on the agencys internal assessment, Fitch continues to consider SOGAZs capital strength to be more than commensurate for its rating level.
SOGAZs investment portfolio is balanced towards marketable fixed-income instruments (end-2011: 83%; end-2010: 78%), which is viewed positively by Fitch, however the portfolio structure contains a number of risks. Among these the agency notes exposure to risky assets represented by various non-investment grade fixed-income instruments, investments in associates, shares and most importantly exposure to SOGAZs parent Bank Rossiya. While the affiliated investment exposure has decreased since end-2010, the proportion of risky assets to equity remains high.
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