OREANDA-NEWS. S&P Global Ratings today revised its outlook on Russia-based insurance company OJSC SOGAZ to positive from stable.

At the same time, we affirmed our 'BB+' long-term insurer financial strength and counterparty credit ratings and 'ruAA+' Russia national scale rating on the company.

The outlook revision stems from our view that SOGAZ is a clear outperformer against peers. At the same time, we consider that its profitable corporate-focused business is somewhat insulated from the poorly performing Russian non-life market, where retail motor business dominates.

Based on our measures, SOGAZ's capital adequacy has improved to extremely strong from very strong, following internal capital generation and lower asset-risk charges stemming from reduced investments in equities and property.

We expect that SOGAZ's earnings stream will remain stable in 2016 under our base-case scenario, with net income exceeding Russian ruble (RUB) 17.8 billion (about $270 million) in 2016 and RUB19 billion (almost $300 million) in 2017. We believe that internal capital generation and modest dividend demands from SOGAZ's shareholders will enable it to maintain extremely strong capital adequacy.

We assess SOGAZ's risk position as moderate. The company diversified its portfolio of investments in 2015 toward government-related banks and banks we consider to be highly systemically important. We exclude such institutions from our portfolio diversification calculations, prompting reduced concentrations, over the past year, for SOGAZ by sector to 20% from 35% and by obligor to 6% from 8%.

Our weighted average of SOGAZ's assets is still in the 'BB' range, however. As a result, we assess the asset quality of its investment portfolio as less than adequate. This is the key constraint on our assessment of SOGAZ's financial risk profile.

The positive outlook on SOGAZ reflects our view that it will likely maintain its strong competitive position in the Russian insurance market, its extremely strong capital adequacy, and at least less-than-adequate investment quality over the next 12-18 months. We also think the company will continue to benefit from its strong ties with Russian vertically integrated gas company Gazprom.

We could consider raising the ratings if we see SOGAZ maintaining its better-than-peer and Russian market operating performance, extremely strong capital adequacy, and at least less-than-adequate investment quality.

We would likely lower the ratings on SOGAZ over the next 12-18 months if we lowered our local currency sovereign credit rating on Russia by two notches.

If SOGAZ's average credit quality deteriorates to weak from less-than-adequate, we could also consider a negative rating action.