9 Feb 2010 14:50

Fitch Downgrades Eximgarant to IFS

LONDON. Feb 9 (Interfax) - Fitch Ratings yesterday downgraded Export-Import Insurance Company of the Republic of Belarus' (Eximgarant) Insurer Financial Strength (IFS) rating to 'B-' from 'B'. The Outlook for the company is Negative, the agency said in a statement.

The statement said: "The downgrade reflects the deterioration in the average credit quality, the increased concentration and the reduced liquidity of Eximgarant's investment portfolio. It also reflects Fitch's view that the Republic of Belarus, Eximgarant's 100% owner, would be no more likely to support the company than other systemically important state-owned enterprises such as banks in the event of need, even though Fitch expects it may have greater ability to do so on account of Eximgarant's relatively smaller size. The Negative Outlook reflects the weakening ability of the Belarusian authorities to support the insurance sector in such a scenario. The Negative Outlook also reflects the weakened economic conditions in the Republic of Belarus and its economic partners, which have already negatively impacted Eximgarant's profitability, as evidenced by an increased loss ratio on export-import insurance products, and which Fitch expects will continue to negatively impact profitability in the near term."

The statement said: "The financial condition of the Republic of Belarus will continue to be one of the main rating drivers for Eximgarant, and Fitch will reflect any change in its opinion, as and when this occurs."

The statement said: "The average credit quality of Eximgarant's investment portfolio declined in the last 12 months, as the company divested most its holdings of government debt, which previously accounted for 44% of the invested assets. The large capital injection by the state conducted during 2009 was invested primarily into the shareholding of Promagroleasing (BYR300bn out of BYR350bn injected, and accounting for 68% of shareholder funds), a large state-owned leasing company, with the remainder invested into the shareholding of Belagroprombank ('B-'/ Negative). The current investment portfolio contains 76% of equity investments and 23% cash and deposits, and the agency also notes the relatively low liquidity of the equity portion of the investment portfolio in light of the underdeveloped investment market in Belarus."

The statement said: "The rating action reflects the deterioration in Eximgarant's underwriting profitability which occurred in 2009, as the export-import lines of business of Eximgarant, as well as other international participants in this niche market, suffered losses stemming from the impact of the financial crisis. The company's combined ratio deteriorated to 135% at end-9m09 from 77% in 2008. Fitch notes that profitability in other lines remains robust, and Eximgarant continues to benefit from the explicit capital support allowed for in the budgetary system of Republic of Belarus for export-import related insurance losses, which has not been utilized to date. In addition, the rating reflects Eximgarant's strong capital position, following the capital injection of BYR350bn conducted by the state during 2009."