Feb 1 - Fitch Ratings has revised the Outlooks on AlfaStrakhovanie PLC
(Russia)'s (AlfaStrakhovanie) 'BB-' Insurer Financial Strength (IFS) rating and
'A+(rus)' National IFS rating to Positive from Stable and affirmed the ratings.
The revision of the Outlook follows the substantial improvement in
AlfaStrakhovanie's operating profitability in 9M12. Based on non-audited IFRS
accounts, profit before tax increased sixfold in that period compared with 9M11.
This largely came from tightened underwriting controls in the non-life
operations, positive profitability of the life portfolio and increased
The affirmation reflects AlfaStrakhovanie's strategic importance to its parent,
Alfa Group, the parent's track record of providing capital support over several
years and Fitch's view that this support is likely to continue to be available
in the future.
AlfaStrakhovanie's combined ratio improved in 2011 to 95.8% (2010: 101.2%).
Against Fitch's expectations, the seasonal increase in the administrative
expenses, common for AlfaStrakhovanie in Q4 did not significantly affect the
combined ratio of 2011, which showed only a marginal deterioration from 94.4% it
reached in 9M11.
In 9M12 the combined ratio improved to 93.7%. This stemmed from strengthened
underwriting controls across most of the portfolio segments and continued
restructuring of the business mix towards more profitable commercial lines.
AlfaStrakhovanie's risk-adjusted capitalisation continues to be low for its
rating. The proceeds from the sale of 25% in its medical services subsidiary in
H211 were not sufficient to support the capital position in the context of rapid
premium growth and were more than offset by the increase in intangible assets on
the insurer's balance sheet. To some extent, the capital weakness is mitigated
by the prudent investment policy and appropriate reinsurance protection that the
insurer has put in place to shield its capital from large losses.
The agency understands that the diversification achieved by AlfaStrakhovanie in
both the insurance and non-insurance spheres is in line with the strategy
approved by its parent. Although AlfaStrakhovanie accounts for only a minor
proportion of Alfa Group's gross assets, the insurer is of strategic importance
to the parent due to its strong retail franchise base, shared brand with one of
the group's core assets - OJSC Alfa-Bank ('BBB-'/Stable) - and broad achievement
of key strategic goals.
AlfaStrakhovanie's investment portfolio is of good credit quality, albeit with
substantial deposits made with its sister company, Alfa-Bank. The insurer also
has a good liquidity position.
RATING DRIVERS AND SENSITIVITIES
The company's ability to maintain operating profitability close to the level
achieved in 9M12 over a number of periods coupled with no worsening of its
capital position would be considered as a trigger for an upgrade.
The ratings could be downgraded if the strategic importance of AlfaStrakhovanie
to its parent decreased. This could result, for example, from AlfaStrakhovanie
failing to meet the strategic targets set by its shareholder.
AlfaStrakhovanie's ratings could also be downgraded if its shareholders fail to
support the capitalisation of the company in the context of continuing growth.
Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable criteria, 'Insurance Rating Methodology', dated 11 January 2013, are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended