Training on sovereign risk credit analysis, October 24

ACRA affirms ААА(RU) to SOGAZ INSURANCE, outlook Stable

The credit rating assigned to SOGAZ INSURANCE (hereinafter, SOGAZ or the Company) is based on its very strong business and financial profiles and adequate management quality. The rating is backed by the Company's strong market position and operating performance and high assessments of capital adequacy, asset quality and liquidity. Additional positive influence comes from the assessment of potential support from Gazprom (ACRA rating: AAA(RU), outlook Stable), a shareholder and major customer of SOGAZ.

In 2018, SOGAZ strengthened its leading market positions in terms of insurance premium; it also finalized the acquisition of the 100% share in VTB Insurance, Ltd., which drove up the Company's share in the insurance market significantly. SOGAZ also leads the Russian insurance market in assets and equity. The Company provides insurance protection to major Russian enterprises, including Gazprom, Rosatom, Russian Railways (ACRA rating: AAA(RU), outlook Stable), and Rosneft Oil Company.

Key rating assessment factors

Very strong business profile stems from the Company’s strong market positions and very strong operating performance. The market share of the SOGAZ Group was 23.5% in 2018. The SOGAZ Group holds strong positions in the VHI and corporate property insurance segments (41% and 52% of the market in the above period). The SOGAZ client base diversification is assessed as above average. ACRA categorizes the SOGAZ product range quality as high in view of the Group's ability to meet the customers’ needs for insurance protection against major property risks and its experience accumulated in employee health insurance. Direct sales account for about 50% of total insurance premiums. Therefore, ACRA assesses the Company's sales channels diversification at above medium.

The operating performance of SOGAZ has been consistently high. The combined loss ratio was 0.86 in 2018, and the ratio is expected to remain not less than 0.9. Last years, the insurance premiums growth rate outpaced the market average due to both M&A transactions and the organic growth of the Company. ACRA expects that the Company will be able to maintain at least market average growth rate and hold the existing market share.

Very strong financial profile is underpinned by a high capitalization and a conservative investment policy of the Company.

The ratio of available capital to capital at risk, calculated according to the ACRA methodology, is 2.2, which, in conjunction with other indicators, contributes to a high capital adequacy of SOGAZ.

The asset quality remains high, regardless of the increase in the share of intangible assets and deferred acquisition costs driven by the acquisition of VTB Insurance, Ltd. ACRA also notes that the concentration of assets concentration has declined.

The strong liquidity position is determined by the short-term and long-term liquidity ratios of over 1.4 and 1.1, respectively.

Management quality is assessed as adequate in view of positive assessments of management experience and structure. The new strategy of SOGAZ is currently being developed. Risk management and actuarial function are assessed above the market.

The resulting assessment takes into account the propensity of Gazprom, a shareholder and the major client of the Company, to support the Company. As the Methodology for Analyzing Member Company Relationships within Corporate Groups is inapplicable, ACRA applied an individual positive adjustment of two notches up against SCA.

Key assumptions

  • The Company will retain its market share and leadership in the corporate insurance sector;
  • The Company will maintain its conservative investment policy;
  • Major shareholders will retain their shareholdings in the Company.

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 negative rating action may be prompted by:

  • Lower business performance indicators of the Company;
  • Lower assessment of capital adequacy or asset quality;
  • Deteriorating assessment of support from Gazprom.

Rating components

Standalone creditworthiness assessment (SCA): aa+.

Adjustments: 2 notches up to SCA.

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 the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating assigned to SOGAZ INSURANCE was first published on July 05, 2017. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

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

No material discrepancies between the provided information and the data officially disclosed by SOGAZ INSURANCE in its financial statements have been discovered.

ACRA provided additional services to SOGAZ INSURANCE. No conflicts of interest were discovered in the course of credit rating assignment.

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