OREANDA-NEWS. Fitch Ratings has affirmed Export-Import Insurance Company of the Republic of Belarus's (Eximgarant) Insurer Financial Strength (IFS) rating at 'B-'. The Outlook is Stable.

The rating continues to reflect the 100% state-ownership of Eximgarant. The Belarusian state has established strong support for Eximgarant in a legal framework with the aim of developing a well-functioning export insurance system. The state's propensity to support the company has been demonstrated by the availability of the government guarantee on export insurance risks, significant capital injections in previous years and the explicit inclusion of Eximgarant's potential capital needs in Belarus's budgetary system.

Eximgarant was founded as a public Export Credit Agency (ECA), but combines two profiles: the exclusive national provider of state-guaranteed export insurance and a traditional non-life insurer. Eximgarant was ranked third-largest by premiums written in Belarus in 2013. The insurer's strong market position is to some extent underpinned by the preferential treatment provided in the legislation governing state-owned insurers.

Fitch's assessment of Eximgarant's risk-adjusted capital adequacy concludes that the company is adequately capitalised for its rating. The insurer nominally maintains an exceptionally strong level of capital relative to the insurer's current business volumes with the Solvency I-like statutory ratio standing at 102x at end-2013. Fitch does not consider that Eximgarant's economic capital adequacy is as strong as the statutory solvency ratio implies since the regulator's formula does not take asset risk into account. Risks on the asset side of Eximgarant's balance sheet are highly concentrated and directly linked to the sovereign credit profile.

Eximgarant has been demonstrating profitable operating performance in the past five years with net profit of BYR84bn in 2013 (2012: BYR61bn). The insurer significantly improved its underwriting result in 2012-2013 with the combined ratio standing at a low 54% in 2012 and 64% in 2013. The loss ratio was the key factor behind this improvement, while expenses were prudently kept stable. The improvement of the loss ratio partially benefited from the end of hyperinflation in 2012 and the Belarusian accounting reform in 2013 with a shift to the accrual method from the cash method. In 2012 the underwriting result also benefited from a significant release of claims case reserves for export credit insurance.

Eximgarant's export risk portfolio has been steadily maturing with the coverage of Belarusian exports by insurance reaching 2.5% in 2013, although it remains relatively undiversified in terms of geographies and industries. The insurer has taken a relatively cautious approach to underwriting in terms of concentration by credit counterparty, which Fitch views positively. The export risk line is not compulsory in Belarus, which means that the company is not forced to accept all applications and can focus on portfolio quality. Eximgarant also manages a portfolio with a somewhat shorter term structure than other public ECAs, generally focusing on medium- and long-term risks. 67% of Eximgarant's exposure had a maturity of 12 months or less at end-2013.

The structure of Eximgarant's traditional non-life portfolio has been evolving in the past few years. The weight of property and casualty lines in the insurer's non-life portfolio increased to 30% in 2013 from 18% in 2012 due to a single large contract. At the same time, the share of motor business, which did not experience growth, reduced to 32% in 2013 from 48% in 2012.

Insurance of domestic financial risks remains one of the key lines in Eximgarant's non-life portfolio with a weight of 26% in 2013. Fitch has some concerns related to the non-core nature of these risks for insurance sectors worldwide, absence of local government guarantees for these risks, the significant use of the insurer's capacity, and concentrated reinsurance protection. Positively, Eximgarant's top exposures by counterparty under this line are state-owned enterprises.

In Fitch's view, Eximgarant's investment portfolio is of relatively low quality. This reflects the credit quality of local investment instruments, constrained by sovereign risks, and the presence of significant concentrations by issuer. Eximgarant's ability to achieve better diversification is limited by the narrowness of the local investment market and strict regulation of the insurer's investment policy.

Any change in Fitch's view of the financial condition of the Republic of Belarus or any significant change in Eximgarant's relationship with the government would be likely to have a direct impact on the insurer ratings.