Fitch Affirms AlfaStrakhovanie PLC's IFS at 'BB'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed AlfaStrakhovanie PLC (Russia)'s (AlfaStrakhovanie) Insurer Financial Strength (IFS) Rating at 'BB' and its National IFS rating at 'AA-(rus)'. The Outlooks are Stable.
KEY RATING DRIVERS
The affirmation and Stable Outlooks reflect AlfaStrakhovanie's resilience to recessionary developments in the Russian economy. The insurer improved its operating profitability in 9M15, but remains thinly capitalised for its business volumes. The ratings also reflect AlfaStrakhovanie's strategic importance to its parent (Alfa Group), the track record of capital support from the parent and Fitch's view that this support is likely to continue to be available in the future.
Based on AlfaStrakhovanie's interim unaudited IFRS reporting, the insurer substantially strengthened its profitability to RUB2.9bn in 9M15 from RUB0.7bn in 9M14 (2014: RUB0.6bn). This strengthening reflected a return to a profitable non-life underwriting result, stable and solid investment income, including stronger investment contribution to the life insurance technical result. The contribution of the medical services subsidiary and compulsory health insurance operator to the insurer's consolidated net profit remained moderate.
The insurer's non-life gross written premiums (GWP) grew 18% yoy in 9M15, largely supported by a recent government-led increase of tariffs for compulsory motor third party liability insurance (MTPL). As a result, the share of this business line in the portfolio grew to 18% from 11% in the same period. To a smaller extent, the growth has been supported by streamlined products sold to households through retailers. On the other hand, the company has witnessed declines in premiums related to construction and aviation, reflecting domestic economic challenges. Apart from these trends, the business mix remains fairly stable.
AlfaStrakhovanie improved its combined ratio of the consolidated non-life portfolio to 98% in 9M15 from 101.1% in 9M14, as the loss ratio fell to 58.8% from 63.2%. Motor damage line has been the most important factor behind this improvement, as a wide use of deductibles in motor damage policies offered by AlfaStrakhovanie starting from 2015 has helped to reduce the frequency of losses. The MTPL loss ratio remained almost unchanged despite the tariff increase, but the insurer has notably reduced the commission levels for the line. The loss ratio of household insurance products was low but it has, to a large extent, been offset by an increase in commissions, so that the line's contribution to the insurer's combined ratio remained unchanged.
Based on Fitch's internal assessment, AlfaStrakhovanie's risk-adjusted capital position moderately improved in 9M15 following the growth of available capital through retained earnings. Nevertheless, the insurer remains thinly capitalised for its business volumes. Positively, the insurer's sound track record of a prudent investment policy and adequate reinsurance protection have shielded its capital from large losses to date.
An upgrade is unlikely given the deteriorated operating environment and weakened sovereign profile. The ratings are also constrained by the insurer's thin capital position.
The ratings could be downgraded if AlfaStrakhovanie reports negative earnings in 2016. The ratings could also be downgraded if its shareholders fail to support the insurer's risk-adjusted capitalisation if it weakens as a result of worsened profitability or the pursuit of growth.