October 30, 2017 / 4:25 PM / a year ago

Fitch Rates Euroins Romania Asigurare Reasigurare SA at IFS 'BB-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 30 (Fitch) Fitch Ratings has assigned Euroins Romania Asigurare Reasigurare SA (Euroins Romania) an Insurer Financial Strength (IFS) rating of 'BB-', and Eurohold Bulgaria AD (Eurohold) a Long-Term Issuer Default Rating (IDR) of 'B'. The Outlooks are Stable. The agency has simultaneously assigned Eurohold's EUR200 million euro medium term note (EMTN) programme ratings of 'B'/'RR4'. KEY RATING DRIVERS The IDR reflects Fitch's assessment of Eurohold's capitalisation, leverage and debt servicing capabilities as weak. This is partly offset by the group's improving financial performance, which we assess as moderately weak. Eurohold's consolidated financial leverage ratio (FLR) improved to 90% as at end-1H17 from 94% at end-2016. Fitch expects the FLR to fall below 70% by end-2017, mainly due to Eurohold's intended BGN52 million capital injection in 4Q17. Our FLR calculation excludes goodwill created through internal restructurings as well as goodwill related to the group's non-insurance related operations. Fitch's assessment of Eurohold's consolidated capitalisation at end-2016, as measured by our Prism Factor Based Model ('Prism FBM'), is 'Weak'. The Solvency II (S2) ratio of Euroins Insurance Group (EIG), Eurohold's insurance business, was 143% at end-1H17. The S2 ratios of the main insurance operating entities Euroins Romania, and Insurance Company Euroins AD were below this level. Eurohold's fixed charge cover (FCC) ratio, excluding realised and unrealised gains, improved to 0.9x at end-2016 from -5.7x at end-2015. However, levels below 1x indicate that debt servicing costs still exceed pre-tax operating earnings. We expect FCC to improve as interest expenses fall mainly as a result of the group's deleveraging plans. Eurohold's profitability has been volatile in the past five years, exacerbated by a BGN87.6 million one-off reserve strengthening in 2015. However, earnings stabilised in 2016 with all business segments posting positive EBITDA. EIG's consolidated combined ratio improved to 99% (2015: 137%), driven by a strong performance at Euroins Romania, which benefited from strong premium increases, disciplined underwriting and improved claims management efficiency. Fitch assesses Eurohold's business profile as good. EIG holds strong market positions in its core Romanian and Bulgarian non-life insurance markets, especially in the motor third-party liability segment. These strengths are offset by the group's small size and limited diversification by business line. EIG strengthened its insurance reserves in 2015, following a series of regulatory balance sheet reviews, which were subsequently reviewed by independent actuarial experts. However, Fitch assessment of reserving is moderately weak, owing to a limited track record of the group's improved reserving practices. Fitch applied a tailored recovery analysis for the group, which resulted in a bespoke Recovery Rating to replace the baseline recovery assumption for debt obligations of the issuer. The recovery analysis, based on a going concern approach, resulted in a Recovery Rating of 'RR4' for senior unsecured debt issued under Eurohold's EMTN programme. As a result Eurohold's EMTN debt programme rating is aligned to the group's IDR. It should be noted that debt ratings are assigned to the programme and not to the notes issued under the programme. There is no assurance that notes issued under the programme will be assigned a rating, or that the rating assigned to a specific issue under the programme will have the same rating as the rating assigned to the programme. RATING SENSITIVITIES Eurohold's IDR could be downgraded if the group fails to maintain profitability on a net income basis, or if its FCC ratio falls below zero. The rating could also be downgraded if one of the S2 ratios at the group's main insurance operating subsidiaries falls below 100%, or if the FLR fails to remain below 70%. The rating could be upgraded if our assessment of capital strength, as measured by Prism FBM, improves to 'Somewhat Weak', and if the FCC ratio improves to above 1.5x for a sustained period. Contact: Primary Analyst Andras Sasdi Associate Director +44 20 3530 1805 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Graham Coutts Director +44 20 3530 1654 Committee Chairperson Willem Loots Senior Director +44 20 3530 1808 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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