TEXT-S&P summary: Pomosch Insurance Company Ltd.
(The following statement was released by the rating agency)
Dec 13 -
Summary analysis -- Pomosch Insurance Company Ltd. ---------------- 13-Dec-2012
CREDIT RATING: Country: Russia
Local currency B/Stable/--
Primary SIC: Life insurance
Credit Rating History:
Local currency Foreign currency
21-Sep-2011 B/-- --/--
The ratings on Russia-based regional insurer Pomosch Insurance Company Ltd. (IC Pomosch) reflect Standard & Poor's Ratings Services' negative view of the company's weak competitive position and negative management and corporate strategy caused by overlap of ownership and control functions within the company. These factors are offset by IC Pomosch's marginal quality of investments and liquidity, while operating performance and capitalization, although we view them as weak, are in line with the ratings' level.
Our view of IC Pomosch's weak international competitive position reflects the company's relatively small size and generally low brand recognition in the Russian insurance market, except in niche segments, where it is well represented. The company reported gross premium written (GPW) of Russian ruble 2.2 billion ($68 million) in 2011. It has limited geographic diversity (69% of GPW generated from Moscow; 31% from St. Petersburg) as well as business line diversity.
IC Pomosch is, however, among the top 10 insurers in niche markets, such as construction risk insurance and liability insurance and has a strong direct distribution channel. Based on our base-case scenario, we expect IC Pomosch to maintain its position within Russia top 50-60 insurers in 2012-2013. But we consider its market share will remain low (less than 1%) and will not likely change significantly over 2012-2013.
We view Pomosch's management and corporate strategy as a weakness for the rating, because of a deficiency in the governance framework, reflected in the complete overlap of ownership and control functions within the company. The management team is stable and has adequate expertise and experience in the insurance industry in our view, however. As the company is run as a family business, we do not expect any material changes in the governance framework in the medium term.
We believe that the marginal credit quality of IC Pomosch's investment portfolio is a rating strength. As of June 30, 2012, 36% of investments were in 'BBB' rated instruments, 36% in 'BB', and 8% in 'B'. However, we note that about 20% were invested in unrated instruments. The company has expressed a commitment to maintaining the credit quality of its investment portfolio at least within the 'BB' range.
Liquidity is marginal and we also view it as a rating strength. Highly liquid instruments with maturities of less than one year comprise about 44% of the investment portfolio. IC Pomosch's liquid instruments fully covered technical provisions as of year-end 2011. The ratio of liquid instruments to net technical reserves is 104%. We believe that IC Pomosch will be able to maintain its liquidity at least at its current level, with support from positive cash flows on insurance operations in 2012-2013.
The stable outlook reflects our expectation that IC Pomosch will maintain the marginal quality of its investments in 2012-2013, while concentrating on successful development of its niche segments in the Russian insurance market.
Further deterioration of the company's risk-based capital adequacy to a "very weak" level could lead to rating downside.
Ratings upside will largely depend on the company's ability to improve its capital adequacy to an at least marginal level, based on Standard & Poor's risk-based capital model.
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