A.M. Best Affirms Ratings of SOGAZ, Insurance Company OJSC Business Wire LONDON -- June 20, 2013 A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of SOGAZ, Insurance Company OJSC (SOGAZ) (Russia). The outlook for both ratings is stable. SOGAZ is the ultimate parent of the SOGAZ Group, which provides a range of insurance and non-insurance related services. The ratings of SOGAZ reflect its good consolidated risk-adjusted capitalisation, consistently strong operating results and strong competitive position as a commercial property insurer. The ratings also consider the high country risk associated with its operations in Russia and its relationship with its major shareholders, BANK “ROSSIYA” and OAO Gazprom (Gazprom), the world’s largest natural gas company. SOGAZ’s consolidated risk-adjusted capitalisation remains at a good level, despite significant growth in 2012. Growth was derived from all lines of insurance, particularly from the property account, which increased by 37%, resulting in gross written premium (GWP) of RR 84 billion in the year (2011: RR 60 billion). However, the rise in premium volume was materially offset by the increase in the group’s capital base due to its strong internal capital generation. SOGAZ’s investments in non-core (strategic) assets have previously been cited as a source of potential downwards pressure on consolidated risk-adjusted capitalisation. A.M. Best understands that SOGAZ’s strategy will focus on its core insurance operations going forward, and has noted the steps taken by the group to de-risk its investment portfolio. SOGAZ’s operating performance remains strong. Consolidated pre-tax profits increased by 56% to RR 14 billion in 2012, owing to the lower impact of large single risk and weather-related losses that affected 2011’s technical results. Additionally, investment earnings of RR 7 billion (2011: RR 4 billion) were bolstered by higher invested assets, with some contributions from realised and unrealised (fair value) gains. SOGAZ maintains its strong competitive profile as a commercial insurer, supported by its excellent brand and long-standing relationships with large Russian corporations. SOGAZ intends to rapidly expand its regional and retail portfolio, in line with its strategic objective to be a universal insurer. Regional and retail business (combined), accounting for 22% of consolidated GWP in 2012, is expected to represent around a third of SOGAZ’s portfolio in the near term. A.M. Best notes SOGAZ’s rapid expansion plans into a highly competitive segment of the market, and as such, A.M. Best will closely monitor the performance associated with its growth. A.M. Best considers Gazprom’s significant influence over SOGAZ to remain. In addition to being SOGAZ’s largest single-name underwriting exposure (representing 26% of GWP in 2012), Gazprom (including affiliates) maintains significant influence on SOGAZ’s Board of Directors, occupying three seats out of seven (BANK “ROSSIYA” maintains two seats). Gazprom maintains a secure credit profile. Positive rating actions could occur if SOGAZ continues to produce strong operating results whilst maintaining risk-adjusted capitalisation at a supportive level. Additionally, further progress in its enterprise risk management framework, along with a sustained reduction in its investment risk profile, will support upwards rating pressure. Negative rating actions could occur if there was a rise in SOGAZ’s investment risk profile to a level higher than A.M. Best’s expectations, or lower than expected operating performance, particularly in relation to its regional expansion. Deterioration in country risk fundamentals could also have a negative impact on SOGAZ’s ratings. Additionally, a rise or decline in Gazprom or BANK “ROSSIYA”’s credit profile is also likely to have a positive or negative impact on SOGAZs ratings. The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure. A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. Contact: A.M. 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A.M. Best Affirms Ratings of SOGAZ, Insurance Company OJSC
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