OREANDA-NEWS. Fitch Ratings has affirmed Belarusian Republican Unitary Insurance Company's (Belgosstrakh) Insurer Financial Strength (IFS) rating at 'B-'. The Outlook is Stable.

KEY RATING DRIVERS

The rating and Outlook mirror Belarus's 'B-'/Stable Local Currency Long-Term Issuer Default Rating (IDR) and reflect the insurer's 100% state ownership. The rating also reflects the presence of guarantees for insurance liabilities under compulsory lines, the insurer's leading market position in a number of segments, its sustainable profit generation, adequate capital position, and the fairly low quality of its investment portfolio.

Belarus redenominated its currency on a scale of 10000:1 on 1 July 2016. This does not have any implications for Belgosstrakh's rating.

Belgosstrakh continues to demonstrate a solid operating performance, with net income of BYR75m (BYR751bn), up from BYR64m (BYR643bn) in 2014. The improvement was mainly achieved through a stronger investment result and one-off FX gains on investments. The underwriting result was also positive, but somewhat weaker than in 2014, with the combined ratio worsening to 95% in 2015 from 89% in 2014 driven by an increased loss ratio. In 3M16 the insurer reported net income of BYR20m (BYR203bn), a moderate improvement from BYR18m (BYR183bn) in 3M15, which reflected similar trends in the underwriting profitability, investment yield and FX gains to those in 2015.

Belgosstrakh has a market-leading positon as the exclusive provider of a number of compulsory lines, including state-guaranteed employers' liability, homeowners' property, agricultural insurance and a number of other more minor lines. The Belarusian state has established strong support for Belgosstrakh in its legal framework, including direct guarantees on policyholder obligations and significant capital injections in previous years.

Based on Fitch's Prism factor-based capital model, the insurer is adequately capitalised for its rating. Belgosstrakh has an exceptionally strong nominal level of capital relative to its current business volume level. Its Solvency I-like statutory ratio at end-3M16 was 13x.

Belgosstrakh's investment portfolio is of relatively low quality, reflecting the credit quality of bank deposits, which is constrained by sovereign risks and the presence of significant concentrations by issuer. The investment profile is attributable to the narrowness of the local investment market and strict regulation of the insurer's investment policy.

RATING SENSITIVITIES

Any change in Belarus's Local Currency Long-Term IDR is likely to lead to a corresponding change in the insurer's IFS rating.