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Fitch Affirms AlfaStrakhovanie PLC at IFS 'BB'; Outlook Stable
July 6, 2017 / 4:07 PM / 5 months ago

Fitch Affirms AlfaStrakhovanie PLC at IFS 'BB'; Outlook Stable

(The following statement was released by the rating agency) LONDON, July 06 (Fitch) Fitch Ratings has affirmed AlfaStrakhovanie PLC (Russia)'s (AlfaStrakhovanie) Insurer Financial Strength (IFS) Rating at 'BB'. The Outlook is Stable. KEY RATING DRIVERS The rating reflects the company's thin, albeit improving, capitalisation, as well as a track record of profitability over the last 5 years, a strong position in the domestic market and sound investment quality compared with peers. Under Fitch's Prism Factor-Based model AlfaStrakhovanie's capital score remained below 'Somewhat Weak' in 2016, though improved on the 2015 score. Significant profit generation, coupled with an absence of dividend payments to the shareholder, supported the company's available capital. However, the level of required capital has increased due to significant net non-life premium growth of 15% in 2016. AlfaStrakhovanie's regulatory solvency margin was 103% at end-2016, down from 149% at end-2015. Exchange rate movements reduced the company's available capital while growing business volumes increased required capital. At end-1Q17 the regulatory solvency margin was restored to a more comfortable level of 120% and Fitch expects AlfaStrakhovanie to remain compliant with regulatory solvency requirements and to maintain the solvency margin above 120% at end-2017. In 2016 the company reported a strong net profit of RUB3 billion, up from RUB2.5 billion in 2015. Return on equity was maintained at an exceptionally high level of 29.3% (2015: 34.2%). Robust investment income of RUB6 billion and a positive underwriting result supported the company's profitability. Adversely the net result was impacted by the revaluation of the Russian rouble and related FX losses on investments amounting to RUB2.7 billion. AlfaStrakhovanie in 1Q17 maintained its uptrend in profitability, with net income totalling RUB1 billion based on local GAAP. In 2016 the company reported a positive non-life underwriting result of RUB2.6 billion, reversing an underwriting loss of RUB384 million in 2015. The combined ratio fell to 95% (2015: 101%). The main contributor was an improvement in the company's loss ratio to 56% in 2016 from 60% in 2015. AlfaStrakhovanie reported an improved underwriting result in all major lines of business it operates in for 2016, with motor insurance being the main driver behind its stronger underwriting profitability. The company's loss ratio for this line decreased to 72% in 2016 from 77% in 2015, in contrast to the overall Russian motor insurance market which saw larger losses over the year. AlfaStrakhovanie has gradually strengthened its market position through acquisitions and organic growth in recent years, with its share of the Russian non-life insurance market excluding obligatory medical insurance growing to 7.9% from 6.6% over 2016. The evolution of the non-life business mix has been gradual in the last five to seven years, with a slight predominance of motor lines in its portfolio up to 2016. The share of compulsory motor third-party liability (MTPL) and motor damage in gross written premiums grew to 45% in 2016. AlfaStrakhovanie's investment portfolio is of sound credit quality and liquidity from a domestic perspective. Non-investment-grade bonds increased sharply in 2016 and in 2015 as a share of the insurer's equity due to a downgrade of the Russian sovereign rating in 2015. RATING SENSITIVITIES The ratings could be upgraded if AlfaStrakhovanie strengthens its risk-adjusted capital position to at least a 'Somewhat Weak' score under Fitch's Prism model and maintains a positive non-life underwriting result and a healthy regulatory solvency margin on a sustained basis. The ratings could be downgraded if AlfaStrakhovanie reports negative earnings on a sustained basis or if its capitalisation as measured by Prism weakens significantly. A downgrade could also result from deterioration in its regulatory solvency margin. Contact: Primary Analyst Sam Mageed Director +44 203 530 1704 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Anastasia Surudina Analyst +7 495 956 5570 Committee Chairperson Willem Loots Senior Director + 44 203 530 1808 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email:; Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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