Fitch Revises GEFEST's Outlook to Positive; Affirms at 'B+'
MOSCOW. Feb 8 (Interfax) - On Tuesday, Fitch Ratings revised JSIC GEFEST's (GEFEST) rating Outlook to Positive from Stable and affirmed its Insurer Financial Strength (IFS) Rating at 'B+' and National IFS rating at 'A(rus)'.
The agency said in a statement: "The Outlook revision reflects Fitch's expectation that GEFEST's capital position will improve following a capital injection that will be completed in Q111. According to the agency's internal assessment, GEFEST's risked-adjusted capital position will have strengthened following the expected capital injection in comparison with previous years. Premium volumes recovered in 2010 after a notable contraction in 2009 as a result of the financial crisis. The key rating drivers that could result in an upgrade include maintenance of the strengthened risk-adjusted capital position through continued adherence to a conservative investment policy together with cautious and profitable expansion in new or non-core lines of business.
"The rating rationale is the sustainability of GEFEST's underwriting performance, the presence of efficient reinsurance protection covering the insurer's core lines, the retention of its strong position in the construction and erection insurance (CAR/EAR) segment, and Fitch's reduced concerns related to its exposure to new contractors' liability risks as this line of insurance was terminated by the Russian government in August 2010.
"Due to the new minimum statutory capital requirements that come into force in 2012, GEFEST arranged a statutory capital increase in 2010 to RUB750m from RUB294m, which is currently in progress and is expected to be finalised in Q111.
"The agency notes that the company's combined ratio had improved significantly as of 9M10 (88.1% in 9M10; 120.3% in 9M09), although the 9M09 result was an exception to the company's track record of strong underwriting performance, primarily driven by a one-off increase in administrative expenses at the same time as premium volumes declined. Fitch expects that the combined ratio at YE10 will continue this improving trend and will be significantly lower than at YE09. GEFEST's adequate reinsurance protection has helped to prevent the capital from depletion after a large gross claim relating to port infrastructure damaged by a storm in Sochi which occurred in 2009 and was fully recovered and settled in 2010.
"GEFEST continues to maintain its market position as a strong niche player. Fitch views the insurer's underwriting expertise in its key CAR/EAR segment as one of its key competitive advantages. The insurer has indicated its strategy is to grow gross premium volumes and to explore new lines of business. Its intention to grow through new lines of business is viewed by Fitch as a constraining factor on the company's rating as the growth strategy could lead to a deterioration of the combined ratio.
"Fitch will also continue to monitor the run-off of the company's exposure to contractors' liability risks despite the fact that the underwriting performance for this line has proved to be profitable so far (loss ratio was equal to 9.53% in 9M10). The agency's concerns related to this line of business include the financial risk in the coverage, the high probability of maximum loss in the case of a claim and the long-term nature of the risks. Although a significant part of this portfolio has a maturity date before end-2013, it also includes some contracts which mature in 2020.
"GEFEST is a non-life insurance company with gross premiums written of RUB1.2bn and gross assets of RUB2.2bn at end-9M10. At present, GEFEST is 60% owned by 21 individuals (including members of the management team) and 40% by eight corporate entities.
"Fitch has affirmed the following ratings:
GEFEST
--IFS at 'B+'; revised Outlook to Positive from Stable;
--National IFS at 'A (rus)'; revised Outlook to Positive from Stable."