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FOR IMMEDIATE RELEASE
LONDON - JULY 18, 2014 11:59 AM (EDT)
A.M. Best has affirmed the financial strength rating of B (Fair) and the issuer credit rating of "bb+" of OJSC Transsiberian Reinsurance Corporation (Transsib Re) (Russia). The outlook for both ratings is stable.
The ratings of Transsib Re reflect the high execution risk and limited expertise associated with its international expansion as well as the company's weak technical performance. Partly offsetting these negative rating factors is Transsib Re's strong level of risk-adjusted capitalisation.
Transsib Re's business profile remains subject to variation, owing to the challenging competitive conditions within its target markets. With gross written premiums of RUB 764.7 million (approximately USD 22 million) in 2013, Transsib Re derives approximately 70% of its business from Russia and the Commonwealth of Independent States. The company maintains a strategy to develop its international portfolio, with a particular focus on Africa, Asia and the Middle East. To date, Transsib Re's international expansion has yet to demonstrate sustained growth and profitability. This factor, combined with soft market conditions in Russia, is likely to continue to negatively affect Transsib Re's performance.
Transsib Re's overall underwriting performance in the most recent five-year period has been poor, with an average combined ratio of 100%. Technical results have been affected by a combination of volatile claims experience in its domestic and overseas markets, and high expenses relative to net premium volumes. Following a number of years of re-underwriting its insurance portfolio, Transsib Re produced an improved combined ratio of 87.9% in 2013, largely driven by an increase in net written premiums and significant reserve releases following the settlement of several large claims. Additionally, Transsib Re reduced its expense ratio to 34.4% compared with 41.2% in the previous year. Despite some signs of improvement in technical performance in 2013, Transsib Re's ability to maintain these results going forward remains uncertain due to its inconsistent expansion strategy.
Transsib Re's risk-adjusted capitalisation remains at a strong level following an increase in paid-up capital in 2013. Capital contributions from Transsib Re's shareholders have predominantly supported growth of its surplus base since 2008. Due to the company's weak overall earnings profile over the past few years, uncertainty continues to exist with the sustainability of Transsib Re's capital management strategy in the medium to longer term.
Positive rating actions could occur if Transsib Re continues to improve its operating performance, with risk-adjusted capitalisation remaining at a supportive level. Additionally, Transsib Re will be expected to demonstrate consistency in its strategic plans, particularly with regard to the international expansion. These fundamentals will be assessed over a longer term.
Negative rating actions could occur if Transsib Re's operating results were to weaken. Additionally, a decline in the company's risk-adjusted capitalisation or deterioration in the macroeconomic conditions of Russia could negatively affect Transsib Re'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. 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 .
This rating announcement has been issued by A.M. Best Europe - Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.