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ACRA assigns BBB(RU) to Kapital Life Insurance, LLC, outlook Stable

The credit rating assigned to Kapital Life Insurance, LLC (hereinafter – Kapital Life or the Company) is due to a strong business profile, a weak financial profile, and quality management. The positive factors of the assessment are strong indicators of Kapital Life’s position in the insurance market as well as strong indicators of the company’s liquidity (assets). ACRA assesses Kapital Life’s large network of agencies in the life insurance sector as a competitive advantage.  The rating is negatively affected by the capital-to-assets ratio, capital adequacy of the Company, as well as by unresolved litigation with PJSC Rosgosstrakh.

Kapital Life, which until September 3, 2018, was under the name IC RGS Life, Ltd., is an insurance company that was founded in 2004. At the end of the first half of 2018, the company ranked 3rd in terms of collected insurance premiums and the market share occupied by Kapital Life in the Russian life insurance market amounted to 7.5%. 100% of the company's shares belong to Invest Life LLC. Kapital Life’s shareholding structure is undergoing a transformation at the current moment. A package of documents is being approved by the Central Bank of the Russian Federation, which, if approved, will assign the actual and formal control of the Company to Evgeniy Giner.

Key rating assessment factors

The strong business profile is determined by a combination of assessments of operating indicators and the Company's position in the Russian insurance market. The assessment of Kapital Life’s market position is categorized as “strong.” Its diversification of its client base is assessed as high. The Company does business in 82 regions of the Russian Federation. Its top 10 customers account for less than 2% of the total insurance premium. Taking distribution structure into account, ACRA assesses the diversification of sales channels as moderate. In 2017, 75% of insurance premiums were received through the partner channel (banks and auto dealers). Sales through the agency network account for 19% of revenues. The Company’s quality of product range is assessed as high. At the end of the first half of 2018, Kapital Life accounted for nearly 7.5% of the market. In September, the Company went through a rebranding, changing its name from IC RGS Life, Ltd. to Kapital Life Insurance, LLC due to the developing conflict with PJSC Rosgosstrakh. It is the opinion of ACRA that the brand change will not seriously affect the loyalty of the company’s clients.

The moderate assessment of operating indicators is based on the Company’s performance outlook data. Kapital Life’s operational effectiveness is at a comfortable level. A significant drop in fees is expected in 2018 due to the termination of sales of insurance policies through the sales channel associated with the banks of the FC Otkritie group. In the midterm perspective, ACRA expects the growth rate of Kapital Life’s insurance premiums to be at the mid-market level.

The weak financial profile is due to the low value of indicators on capital-to-assets ratio and capital adequacy of the Company.

The indicator of capital adequacy is assessed as below moderate according to ACRA’s stress test, which is calculated in compliance with ACRA’s methodology.

The assessment of asset quality is due to a combination of factors: low weighted average asset risk index (1.46) and low capital-to-assets ratio (0.055).

Strong liquidity is determined by estimates of liquidity ratios in the short and long term: 5.3 and 1.0, respectively.

The quality of management of the Company is evaluated by ACRA as adequate due to positive assessments of the experience and structure of management as well as its actuarial function. The company's strategy is in the process of updating. Risk management and the quality of corporate governance received a neutral assessment.

Key assumptions

  • Realization of business plans over the next 12-18 months according to the management’s outlook.
  • Conclusion of litigation with PJSC Rosgosstrakh without substantial financial consequences.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Increase in the Company’s capital adequacy ratio
  • Increase in the capital-to-assets ratio

A negative rating action may be prompted by:

  • Unfavorable outcome of litigation with PJSC Rosgosstrakh
  • Growth rate of insurance premiums below mid-market
  • Decrease in return on assets

Rating components

SCA: bbb.

Adjustments: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation and is based on the Methodology for Credit Ratings Assignment to Insurance Companies Under the National Scale for the Russian Federation, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating has been assigned to Kapital Life Insurance, LLC for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action date (October 8, 2018).

The assigned credit rating is based on the data provided by Kapital Life Insurance, LLC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the GAAP and IFRS financial statements of Kapital Life Insurance, LLC. The credit rating is solicited, and Kapital Life Insurance, LLC participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by Kapital Life Insurance, LLC in its financial statements have been discovered.

ACRA provided no additional services to Kapital Life Insurance, LLC. No conflicts of interest were discovered in the course of credit rating assignment.

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