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ACRA affirms ААА(RU) to JSC Russian National Reinsurance Company, outlook Stable

ACRA affirms ААА(RU), outlook Stable, to JSC Russian National Reinsurance Company
(hereinafter, the Company).

The credit rating is based on the Company's very strong business and financial profiles coupled with high-quality management. The factor of support by the Bank of Russia is assessed as relatively strong; however it does not impact the Company’s resulting credit rating, as the standalone creditworthiness assessment (SCA) of the Company is maximum possible (aaa).

RNRC is a specialized reinsurance company established in accordance with Article 13.1 of the RF Law “On insurance business in the Russian Federation” November 27, 1992. With its sole shareholder being the Bank of Russia, the Company was established to provide additional protection to insureds under international sanctions. In accordance with the law, the Company may act as a party to outward reinsurance contracts made by Russian insurers (mandatory cession).

Key rating assessment factors

Very strong business profile of the Company is premised upon its stable market position and very strong operating performance expected in the short and medium term. By ACRA’s criteria, the Company’s customer base diversification is below average due to a high share of the top customer in the reinsurance portfolio. This is partially mitigated by companies being bound to transfer to RNRC part of reinsurance premium. ACRA assesses the Company’s product range quality as high, as RNRC possesses underwriting competence across almost all significant types of insurance and reinsurance. Sales channels pertaining to insurance products are not diversified, with more than 90% of premiums coming in the form of mandatory cession. Nevertheless, this sales channel is practically devoid of risks, so the Company’s service distribution system is extremely reliable.

The operating efficiency of RNRC is assessed as high, with the combined loss ratio expected to be much lower than 1 in the mid-term, and growth rates anticipated to significantly exceed the market average in 2018-2020.

Very strong financial profile rests on high capital adequacy, high asset quality and strong liquidity.

The ratio of available capital and capital at risk, calculated according to the ACRA methodology, stands at 2.1, which, combined with assessments of other indicators, defines the Company’s capital adequacy as high.

The high assessment of the Company's assets is supported by the Company investing mainly in low-risk assets while maintaining its capital-to-assets ratio at an exceptionally high level (0.7 at end-2017).

Strong liquidity is premised upon assessments of short and long term liquidity ratios of 2.9 and 3.3, respectively (as of end-2017).

Management quality of the Company is regarded as high, based on positive assessments of all factor components.

High likelihood of extraordinary support from the Bank of Russia. A very high degree of state influence on the Company is manifested in the government's shareholder and operational control over the Company, participation of the Company in government projects, and the Bank of Russia's commitment to capitalize the Company for losses (if any) arising out of sanctions risks. The Company’s systemic importance to date is assessed as medium. Taken together, those factors entail a three-notch upward adjustment of the Company’s SCA, in accordance with the ACRA methodology.

Key assumptions

  • Retaining the key legislative provisions defining the Company's status within the 3-year horizon;
  • The Bank of Russia remaining the controlling shareholder within the 3-year horizon;
  • Sustaining the current policies governing risk management, investments and underwriting (i.e. retaining the Company’s business model) within the 3-year horizon.

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:

  • A downgrade of the Company’s financial profile assessment coupled with a decline in the likelihood of extraordinary support from the Bank of Russia.

Rating components

SCA: aaa.

Adjustments: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned to JSC Russian National Reinsurance Company under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Insurance Companies Under the National Scale for the Russian Federation, the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities, and the Methodology for Analyzing Relationships Between Rated Entities and the State.

The credit rating assigned to JSC Russian National Reinsurance Company was first published on May 02, 2017. The credit rating and its outlook are expected to be revised within one year following the rating action (April 27, 2018).

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

No material discrepancies between the provided information and the data officially disclosed by JSC Russian National Reinsurance Company in its financial statements have been discovered.

ACRA provided no additional services JSC Russian National Reinsurance Company. No conflicts of interest were discovered in the course of credit rating assignment.

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