The credit rating of British Insurance House LLC (the Company) has been upgraded based on better liquidity assessment and stronger financial profile of the Company. The new level of credit rating is determined by the Company's moderately strong business profile, moderately weak financial profile, and satisfactory quality of corporate governance. The rating is under pressure of capital adequacy assessment. Positive factors include moderately strong operational performance.
The Company is an insurance company focused on certain types of corporate insurance. The Company's insurance portfolio mostly includes construction companies. Priority lines of business include liability insurance, cargo insurance, corporate property insurance and voluntary health insurance.
Key rating assessment factors
The moderately strong business profile is a result of a combination of assessments of the Company's positions in the Russian insurance market and operational indicators. In 2018, the market share of the Company was most noticeable in the third-party liability insurance segment (2.2%). The diversification of the customer base is estimated as below average and the diversification of sales channels and the product range quality as medium. The client base diversification assessment is affected by the high concentration of the portfolio on the construction industry companies. The product range quality assessment reflects the limited number of insurance services offered by the Company on the market. At the same time, ACRA takes into account that the Company is a "niche" company, whose clients are not interested in other types of insurance services offered on the market. In general, the Company's market position is between "sustainable" and "vulnerable."
The operational performance of the Company is quite high. The combined loss ratio amounted to 0.92 in 2018. In the nearest future, the ratio is expected to remain within the comfortable range. The growth rate is projected at least on par with the market average (2019 forecast: 106%).
The moderately weak financial profile is caused by relatively low assessments of current liquidity and capital adequacy. Asset quality assessment is higher, however, in accordance with ACRA methodology, it has no impact on the financial profile assessment.
In 2018, the current liquidity ratio, calculated in accordance with the methodology of ACRA, grew up to 1.0, but it is still considered to be weak. At the same time, following
a decline in the volume of long-term liabilities, the long-term liquidity ratio grew up to 1.1, which allows ACRA to assess the long-term liquidity as strong.
According to ACRA's criteria, the capital adequacy of the Company is low: a combination of the two stress scenarios (a disaster and a denial of any of the reinsurers to cover the relevant losses) may result in the Company's default.
The quality of the Company's assets is assessed as average, which reflects a large proportion of assets featuring a high risk index: real estate investments (including real estate investment fund) account for about 40% of the total assets. In addition, the concentration of assets is increased, as the share of top 10 assets exceeds 67% (ACRA's safe threshold is 40%). At the same time, the high ratio of capital to assets (0.37 in 2018) pulls up the overall asset quality assessment.
The satisfactory quality of corporate governance is based on the positive assessment of management team's experience and structure and the neutral assessments of other sub-factors.
- The Company will implement its business plans in the next 12–18 months, as expected by the management;
- The combined loss ratio will not exceed 1.
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 positive rating action may be prompted by:
- Growing liquidity ratios;
- Growing capital adequacy.
A negative rating action may be prompted by:
- Losses exceeding the forecast;
- Lower operating performance;
- Weaker market positions.
No outstanding issues have been rated.
The credit rating was assigned 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 and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating assigned to British Insurance House LLC was first published on May 29, 2018. 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 was assigned based on the data provided by British Insurance House LLC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the GAS and IFRS financial statements of British Insurance House LLC. The credit rating is solicited, and British Insurance House LLC participated in the rating process.
No material discrepancies between the provided information and the data officially disclosed by British Insurance House LLC in its financial statements have been discovered.
ACRA provided additional services to British Insurance House LLC. No conflicts of interest were discovered in the course of credit rating assignment.