TEXT-S&P affirms Russia-based Ingosstrakh at 'BBB-'
Overview -- Ingosstrakh has acquired 50%, plus one voting share, of Bank Soyuz from Russia's Deposit Insurance Agency and now owns 100% of Bank Soyuz. -- The terms of the transaction are not materially different from those under our previous base-case scenario. -- Consequently we are affirming our 'BBB-' and 'ruAA+' ratings on Ingosstrakh. -- The stable outlook reflects our belief that Ingosstrakh will at least maintain its competitive position, supported by its strong management, while preserving an adequate operating performance and marginal risk-based capitalization. Rating Action On Nov. 2, 2012, Standard & Poor's Ratings Services affirmed its 'BBB-' long-term counterparty credit and financial strength ratings and 'ruAA+' Russia national scale ratings on Russia-based Ingosstrakh Insurance Co. The outlook is stable. Rationale The affirmation follows Ingosstrakh's acquisition of 50% plus one share of Bank Soyuz from the Russian Deposit Insurance Agency (DIA). The transaction cost Russian ruble (RUB) 2,815 billion (about $90 million). We currently regard Ingosstrakh's investment in Bank Soyuz as an investment in a subsidiary and therefore deduct this investment from our calculation of the company's total adjusted capital. This is because we no longer believe this capital to be available to support the insurance operations, and we will continue using this approach for our analyses. Despite the transaction, which increases capital charges, we expect that Ingosstrakh's risk-based capital adequacy will remain at least marginal, factoring in our anticipation of full profit retention for 2012. Additionally, we classify Bank Soyuz as a nonstrategic subsidiary of Ingosstrakh as our criteria define this term. This is because the degree of integration and business cooperation between the two entities has so far been limited. However, we believe that Ingosstrakh could still provide additional support to Bank Soyuz or negotiate such support. We note that Bank Soyuz: -- Represents about 30% of Ingosstrakh's capital, -- Operates in geographic regions that are integral to the overall group strategy, -- Has benefited from the group in the past, and -- Is unlikely to be sold over the next 18 to 24 months. The ratings on Ingosstrakh continue to reflect our view of the company's good competitive position in the Russian Federation (Russia; foreign currency BBB/Stable/A-2; local currency BBB+/Stable/A-2; Russia national scale 'ruAAA'), its management team's positive track record, and Ingosstrakh's adequate operating performance and generally adequate capitalization, supported by appropriate reserving and reinsurance protection. These strengths are offset by still-high industry and country risks, the marginal quality of Ingosstrakh's investments, and its marginal financial flexibility. Outlook The stable outlook reflects our belief that Ingosstrakh will at least maintain its competitive position, supported by its strong management, while preserving an adequate operating performance and marginal risk-based capitalization. We would consider lowering the ratings if we believed Ingosstrakh's capitalization would fall below the level we regard as commensurate with the rating, for example, if the company made further significant investments in Bank Soyuz that are not covered by additional retained earnings. A negative rating action could also result if we observed a significant deterioration in the average quality of Ingosstrakh's investment portfolio or significant weakening of its underlying operating results. We could take a positive rating action if Ingosstrakh significantly strengthened its competitive position and achieved at least strong risk-based capital adequacy, under our criteria, and a good-quality investment portfolio. Related Criteria And Research -- Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010 -- Group Methodology, April 22, 2009 Ratings List Ratings Affirmed Ingosstrakh Insurance Co. Counterparty Credit Rating BBB-/Stable/-- Russia National Scale ruAA+/--/-- Financial Strength Rating BBB-/Stable/-- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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