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A.M. Best Revises Outlook to Negative for SCHWARZMEER UND OSTSEE Versicherungs-Aktiengesellschaft


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Charlotte Vigier
Senior Financial Analyst
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charlotte.vigier@ambest.com

Deniese Imoukhuede
Associate Director, Analytics
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deniese.imoukhuede@ambest.com


Christopher Sharkey
Manager, Public Relations
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Jim Peavy
Assistant Vice President, Public Relations
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james.peavy@ambest.com

FOR IMMEDIATE RELEASE

LONDON - AUGUST 28, 2014 01:12 PM (EDT)
A.M. Best has revised the outlook to negative from stable and affirmed the financial strength rating of B++ (Good) and the issuer credit rating of "bbb" of SCHWARZMEER UND OSTSEE Versicherungs-Aktiengesellschaft (SOVAG) (Germany).

The negative outlook reflects SOVAG's weak underwriting performance, which has resulted in a five- year average combined ratio of 111.4%. Despite ongoing initiatives to cancel under-performing business and increasing motor rates, SOVAG posted a pre-tax loss (before releases from the equalisation reserve) of EUR 6.2 million in 2013, due to high natural catastrophe losses in Germany and the adverse reserve development of its marine portfolio. Although SOVAG's risk-adjusted capitalisation remains adequate for the current rating level, it has deteriorated in recent years as a result of post-tax losses.

Partially offsetting these negative rating factors is SOVAG's strategic decision to cease underwriting its unprofitable retail business and to focus on its core business segments, which include mid-size German corporate accounts, international facultative reinsurance and Russian clients operating in Europe and the Commonwealth of Independent States. SOVAG's Russian business is written with the support of its parent, OJSC INSURANCE COMPANY OF GAZ INDUSTRY SOGAZ (SOGAZ) (Russia). The change in strategy is expected to support better technical performance from 2016 onwards but A.M. Best believes the initial cost of running off retail business, coupled with highly competitive operating conditions in Germany, will moderate the improvement in the near term.

Positive rating actions are unlikely in the near term. Negative rating actions could occur if SOVAG does not improve its technical and overall performance in accordance with its business plans. Additionally, material erosion in risk-adjusted capitalisation will likely result in downward rating pressure. Any deterioration in the credit profile of SOGAZ could lead to negative rating actions for SOVAG.

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.


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