(The following statement was released by the rating agency)
Dec 20 - Fitch Ratings has affirmed ACE Insurance Company CJSC (Russia)'s
(ACE Russia) Insurer Financial Strength (IFS) rating at 'BBB+' and National IFS
rating at 'AAA(rus)'. The Outlooks are Stable.
The affirmation reflects Fitch's confidence about the ACE Group (ACE)'s
willingness and ability to provide capital support to ACE Russia in case of
need. The Stable Outlooks reflect the agency's expectation that the scale of ACE
Russia's operations will not significantly increase in the short to medium term
compared with that of ACE.
ACE Russia is part of ACE, a global insurer and reinsurer. The ultimate parent
of the group is ACE Limited, domiciled in Switzerland (Long-Term IDR
'A+'/Positive). ACE Russia has received capital support from the group whenever
required. The insurer also benefits from the group's advice and close monitoring
in all key areas, including underwriting, reinsurance, claims, actuarial,
investment and IT advice.
In accordance with its rating criteria, Fitch views ACE Russia as standing at
the "Important" level of strategic importance within ACE. This is based on the
deep integration of the operations, shared brand name, sustainable track record
of support and aligned corporate governance and risk management procedures, but
limited scale of ACE Russia relative to ACE.
On a standalone basis, ACE Russia would be assessed more than six notches below
the parent. Fitch also considers that capital is fungible between the parent and
ACE Russia. The agency has therefore decided to apply a partial attribution
approach and reduced the difference between the group assessment and the
standalone assessment (benchmarked to IFS) to a minimum of four notches in
accordance with the agency's criteria. This reduction was based on the
sustainable track record of support and the strengthened performance of the
subsidiary in the recent years.
According to Fitch's internal assessment, ACE Russia's risk-adjusted capital is
very strong and is supportive of the insurer's rating level. Capital appears to
be somewhat excessive relative to net business volumes and the strong balance
sheet, but nevertheless is kept at the insurer's level for regulatory purposes.
The level of net retention and growth projections are also supportive of the
view that ACE Russia is strongly capitalised.
ACE Russia reported marginally positive operating result in 2007-2011 in the
statutory accounts. In 9M12 strong control over acquisition costs and
administrative expenses more than offset deterioration in claims frequency. ACE
Russia's combined ratio before the intra-group reinsurance (calculated in
accordance with US GAAP) was significantly below 100% in 2010 and 2011, while in
10M12 it showed a deterioration but still a material underwriting profit. Fitch
believes ACE Russia will continue to be profitable despite the soft rates due to
competition in the market.
In Fitch's view, ACE Russia's reinsurance protection is adequate and of good
credit quality. The protection is largely based on excess-of-loss and
quota-share treaties placed with the key operating companies within ACE,
primarily ACE Tempest Reinsurance Limited. ACE Russia also purchases facultative
protection, a major part of which is placed with the ACE Group and minor limits
are ceded to a few local universal insurers and reinsurers.
Fitch would view any weakening in the level of parent support to ACE Russia as a
key trigger for a downgrade.
If ACE Russia maintains sustainable and profitable growth of its insurance
portfolio and achieves a more significant scale relative to ACE, Fitch could
view it as a trigger for an upgrade. However, the agency does not expect the
insurer to achieve material growth in the short or medium term.
In addition, the ratings could be upgraded if a formal support agreement were to
be introduced between ACE Limited and ACE Russia.
(Caryn Trokie, New York Ratings Unit)