(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
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.