16 Apr 2010 16:31

S&P upgrades Moscow Re to 'BB' on improved competitive position; outlook stable

MOSCOW. April 16 (Interfax) - Standard & Poor's Ratings Services said today that it had raised its long-term counterparty credit and financial strength ratings on Russian reinsurer Moscow Reinsurance Co. (Moscow Re) to 'BB' from 'BB-'. The outlook is stable. At the same time, the Russia national scale rating was raised to 'ruAA' from 'ruAA-'.

The rating actions are based on S&P's view that Moscow Re's competitive position has improved as a result of continuing integration into Russia-based Insurance Group MSK (IG MSK).

"Moscow Re's overall competitive position is marginal, in our view, reflecting high industry risk in Russia and Moscow Re's relatively small size by international standards. Moscow Re's competitive advantages include its solid position in property and motor risk, significant technical expertise, and strong brand name," said Standard & Poor's credit analyst Victor Nikolskiy.

Despite challenging market conditions and a contracting reinsurance market, Moscow Re managed to increase its reinsurance portfolio to Russian ruble (RUB) 723 million (about $24 million) of gross premiums written (GPW) in 2009, a 12% increase compared with 2008.

In addition, reinsurance business totaling RUB322 million, underwritten by IG MSK subsidiaries OJSC MSK (MSK; not rated) and ICJSC MSK-Standard (not rated) in 2009, was transferred to Moscow Re in the first quarter of 2010. Following this transfer, all the group's reinsurance activities will be handled by Moscow Re, as the reinsurance center for the group. "We believe this will boost Moscow Re's premiums in 2010, support its competitive position, and enhance operating efficiency and the diversity of the reinsurance portfolio. We further believe that Moscow Re has the potential to improve its market share in 2010, as well as its ranking among Russian specialist reinsurers; it now ranks third by GPW," the press release says.

"We view Moscow Re's investments as adequate, reflecting limited diversity and adequate credit quality. The portfolio currently includes RUB320 million of promissory notes issued by MSK (21% of investments), but we understand from management that this investment is temporary and will be eliminated. This, in our view, will restore the conventional structure of Moscow Re's investment portfolio within the next two months," it says.

About 13% of Moscow Re's investments were deposits with the Bank of Moscow (not rated) as of year-end 2009, bringing the total related-party exposure in the investment portfolio to 34%, which we consider high. The portfolio remains generally concentrated: The top four counterparties account for more than 80% of all investments. Exposure to market risk is limited, in our view, because only 4% of the portfolio consists of equities and 6% comprises government, municipal, and corporate bonds.

"We regard Moscow Re's capitalization as adequate and capital adequacy good. However, the absolute size of the capital base is small. We consider reserves and reinsurance protection to be adequate."

"The stable outlook reflects our view that Moscow Re will continue to benefit from its membership of IG MSK and the commitment of its shareholders in its quest to become one of the leading reinsurers in Russia."