LONDON: AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of “bb+” of Russian Reinsurance Company JSC. The outlook of these Credit Ratings remains stable.
The ratings reflect Russian Re’s balance sheet strength, which AM Best categorises as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
The company’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). An offsetting factor is the relatively low liquidity of Russian Re’s investment portfolio, with a third of invested assets held in real estate.
Additionally, the company has a high dependence on a single reinsurer, with which it has a long-standing relationship. The associated credit risk is mitigated partially by the reinsurer’s excellent financial strength.
Russian Re’s operating performance is adequate, with the company reporting a five-year weighted average combined ratio of 99.7% and return on equity of 9.9% (2014-2018).
Performance has been volatile over the past 10 years; however, results since 2016 have been good, reflecting corrective measures taken by management. Investment results have been positive in each of the past five years, albeit subject to fluctuations, particularly due to foreign exchange movements.
AM Best’s assessment of Russian Re’s business profile as limited stems from its relatively small size, with gross written premiums (GWP) of USD 16.7 million in 2018, and its limited geographical diversification, with approximately 70% of GWP sourced from Russia.
The company maintains a 2.7% share in the local reinsurance market and does not have an established profile in any of the international markets in which it operates. The company’s medium-term plans include further growth in Asia Pacific and Latin America.
Russian Re’s ERM framework is evolving with certain elements not yet formalised. Risk management capabilities in some areas have not moved in line with the company’s risk profile, particularly in view of expansion into foreign markets and developments in the regulatory environment in Russia.