RPT-Fitch affirms VTB Insurance at 'BBB'; outlook negative
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Dec 5 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Russia-based VTB Insurance Limited's (VTBI) Insurer Financial Strength (IFS) rating at 'BBB' and its National IFS rating at 'AAA(rus)'. The Outlook is Negative.
The affirmation follows the announcement on 3 December 2013 that VTBI will acquire three insurance companies from OJSC Metropolitan Insurance Group (MIG) and Insurance Group MSK (IG MSK, BB-/Stable), both indirectly owned by VTBI's parent Bank VTB (BBB/Negative).
KEY RATING DRIVERS
The transfer of a number of Bank VTB's insurance assets to VTBI reinforces Fitch's view of VTBI as the bank's anchor insurance operating company. The ratings of VTBI continue to be aligned with its 100% owner Bank VTB. The Negative Outlook on the insurer's rating continues to mirror that on the parent bank.
The transferred insurance assets include life insurer 'MSK-Life', specialist reinsurer 'Moscow Re', and a compulsory health insurance company 'Solidarity for Life' (Sovita). They are small relative to VTBI in terms of net assets and will start to be consolidated in VTBI's financial results from 2014. The acquisition is due to be approved by the relevant authorities by end-2013.
Fitch views this acquisition as part of Bank VTB's new strategy for its insurance subsidiaries. Fitch continues to consider a merger of the two key non-life companies, VTBI and IG MSK, as unlikely, at least in the near term as the agency believes that IG MSK's priority would be to restore underwriting profitability in its core motor segment.
VTBI plans to fund the acquisition through its own resources, but the parent may reduce the amount of dividends to be paid by VTBI in 2014 by the amount to be spent on the acquisition. The cost of acquisition will be equal to the companies' net asset values, meaning that there will be no goodwill arising on the acquisitions and the quality of VTBI's available capital will therefore be unaffected.
VTBI will have full operational control over the acquired companies and plans to develop a strategy for them in 1H14. MSK-Life will be renamed VTB Life Insurance and will complement VTBI's non-life bancassurance range with life products.
Moscow Re will retain its locally strong brand and continue operating as a specialist non-life reinsurer. Sovita will also keep its name, at least in the near term. VTBI expects that the companies will not require capital injections in the near term.
Fitch continues to see VTB's ownership of VTBI as a key factor underpinning the latter's ratings. This view is based on the strategic importance of the company to Bank VTB given their shared brand name and franchise base; the insurer's fairly strong standalone financial profile; and the board being composed of senior managers from the VTB group. Fitch is of the view that support would be provided to VTBI by its parent if and when necessary.
VTBI's ratings will continue to mirror those of Bank VTB. A downgrade would be possible if Fitch considered VTBI to be less significant to the group. This change in view could be triggered by the insurer's failure to meet the parent's expectations in relation to key strategic targets.
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