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FOR IMMEDIATE RELEASE
LONDON - APRIL 05, 2019 11:03 AM (EDT)
AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of PASHA Insurance OJSC (PASHA Insurance) (Azerbaijan).
The negative outlook reflects AM Best’s concern over the company’s ability to maintain its risk-adjusted capitalisation at the strongest level over the medium term, as AM Best does not expect strong growth in underwriting risk to be accompanied by growth in capital resources. In addition, business growth will likely lead to higher exposure to catastrophe risk. AM Best does expect PASHA Insurance to significantly increase its non-proportional reinsurance protection in order to mitigate this risk and failure to put appropriate protection in place will result in further negative rating pressure.
The ratings reflect PASHA Insurance’s balance sheet strength, which AM Best categorises as strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management.
Pasha Insurance’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, supported by the company’s moderate underwriting leverage and a relatively conservative investment strategy. Factors that negatively affect the company’s balance sheet strength assessment are its high dividend payout ratio, which limits growth of its capital base, its significant exposure to catastrophe losses and the high financial system risk in Azerbaijan.
The company’s strong operating performance is demonstrated by a five-year weighted average combined ratio of 85% and return on capital and surplus of 20.5% (2013–2017). Over this period, earnings benefited from a low level of loss activity in Azerbaijan, as well as the high interest rate environment in the country. In 2018, the company generated a strong net profit of AZN 21.5 million (approximately USD 12.9 million). Prospective performance may be subject to volatility due to the challenging market conditions in Azerbaijan, as well as the company’s plans to expand its insurance operations into market segments where it has limited expertise.
PASHA Insurance maintains a solid competitive position in Azerbaijan’s small and underdeveloped insurance market, supported by its affiliation with the PASHA group and its established business relationships with large commercial customers. However, there is material concentration risk in PASHA Insurance’s underwriting portfolio, with a single group medical client accounting for approximately two-fifths of the company’s gross written premium.
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