ACRA affirms ААА(RU) to SOGAZ INSURANCE, outlook Stable

The credit rating assigned to SOGAZ INSURANCE (hereinafter, SOGAZ, or the Company) is based on its very strong business and financial profiles and adequate management quality. The rating is backed by the Company’s strong market position and operating performance, and high assessments of capital adequacy, asset quality, and liquidity. Additional positive influence comes from the assessment of the Company’s relationship with one of its shareholders and largest customer, Gazprom (ACRA rating: AAA(RU), outlook Stable).

In 2019, SOGAZ continued to confidently lead the Russian insurance market in terms of signed insurance premiums, assets and equity. SOGAZ Group includes the parent company SOGAZ INSURANCE (a universal insurer), its subsidiaries: IC SOGAZ-ZHIZN LLC (life insurance) and IC SOGAZ-Med JSC (compulsory health insurance), and several healthcare and related businesses. SOGAZ provides insurance cover to major Russian corporations, including Gazprom, Rosatom, Joint Stock Company “Russian Railways” (ACRA rating: AAA(RU), outlook Stable), and Rosneft Oil Company.

Key rating assessment factors

The very strong business profile stems from the Company’s strong market positions and strong operating performance. The market share of SOGAZ Group was 23.2% in 2019. SOGAZ Group holds strong positions in the voluntary health insurance and corporate property insurance segments (38% and 52% of the market in the aforementioned period). SOGAZ’s client base diversification is assessed as above average. ACRA assesses the quality of SOGAZ’s product range as high in view of the Company’s ability to meet its customers’ needs for insurance protection against major property risks and its experience in the field of employee health insurance. The structure of distribution channels is dominated by direct sales (39%) and the banking channel (44%), whose share increased significantly after the acquisition of insurance companies owned by VTB Bank (PJSC) and its inclusion among the shareholders of SOGAZ.

The operational efficiency of SOGAZ has been consistently high. The combined loss ratio was 0.88 in 2019, and is expected to remain at not less than 0.9. The insurance premium growth rate has outpaced the market average in recent years due to both M&A transactions and the organic growth of the Company. ACRA expects that the Company will be able to maintain the average market growth rate at the least by holding on to its existing market share.

ACRA assumes that the coronavirus pandemic and the restrictions related to it will have a limited and temporary impact on the assessment of SOGAZ Group’s business profile. A possible decline in the volume of insurance premiums in specific segments should not have a serious impact on SOGAZ’s market share or on the medium- and long-term growth rates of SOGAZ Group. ACRA also does not expect operating efficiency indicators to decline.

The very strong financial profile is underpinned by the Company’s high capitalization and conservative investment policy.

The ratio of available capital to capital at risk, calculated according to ACRA’s methodology, is 3.8, which contributes to the high capital adequacy of SOGAZ.

The asset quality remains high, regardless of the increase in the share of intangible assets and deferred acquisition costs driven by the acquisition of VTB Insurance, Ltd. ACRA also notes that asset concentration has declined.

The strong liquidity position is determined by the short-term and long-term liquidity ratios of 1.5 and 1.2, respectively.

Management quality is assessed as adequate in view of the positive assessments of management experience and structure, and the actuarial function. SOGAZ’s strategy is still being developed. ACRA also notes the consistent development of the risk management system.

In its final assessment of the rating, ACRA also made a positive adjustment to the SCA, taking into account the sustainable competitive advantage associated with the relationship with one of the Company’s shareholders and its largest customer, Gazprom.

Key assumptions

  • Retaining market share and leadership in the corporate insurance sector;
  • Maintaining the conservative investment policy;
  • Major shareholders retaining their shareholdings in the Company.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A negative rating action may be prompted by:

  • Lower business performance indicators of the Company;
  • Lower assessment of asset quality;
  • Deteriorating assessment of the relationship with Gazprom.

Rating components

SCA: aa+.

Adjustments: SCA +2 notches.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Insurance Organizations on the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating of SOGAZ INSURANCE was published by ACRA for the first time on July 5, 2017. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on the data provided by SOGAZ INSURANCE, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the RAS and IFRS statements of SOGAZ INSURANCE. The credit rating is solicited, and SOGAZ INSURANCE participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by SOGAZ INSURANCE in its financial statements have been discovered.

ACRA provided additional services to SOGAZ INSURANCE. No conflicts of interest were discovered in the course of credit rating assignment.

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