The credit rating of Insurance Company "ARSENAL" LLC (hereinafter, the Company) is based on the Company’s average financial profile, moderately weak business profile, and satisfactory quality of management.
Strong asset quality and liquidity assessments support the rating. However, the rating is limited by the moderately weak assessment of the Company's operating performance.
In recent years, the Company has taken a leading position in the field of liability insurance during customs procedures, which amounts to about 60% of the Company's insurance premiums. As of June 30, 2019, the Company ranked 69th in the last four quarters among insurance companies in terms of insurance premiums. The Company’s ultimate beneficiaries are Sergey Lobanov (50%), Vladimir Smirnov (25%), and Sergey Kovalev (25%) via ownership of the Company’s corporate members.
Key rating assessment factors
The moderately weak business profile is based on the Company’s limited market positions and the moderately weak assessment of its operating indicators.
According to data for H1 2019, the Company’s market share was less than 1%. ACRA assesses the diversification of the Company's customer base as average based on its large share of organizations in the freight industry. ACRA assesses the quality of the Company’s product range as moderately weak considering the completeness and demand for the insurance products it offers. The diversification of sales channels is estimated as average.
The assessment of operational indicators is based on ACRA’s forecast data on the Company’s activities. There has been a significant increase in competition this year in liability insurance during customs procedures, the main segment of the Company's activities. This has resulted in a decrease in the premium for this segment in the Company's portfolio. The Company plans to partially offset this decrease by developing other types of insurance. According to ACRA, the Company's insurance premium will grow at a rate below the market average over the next two years.
The Company’s combined ratio, which amounted to 0.89 for 2018, stood at 0.97 for H1 2019. ACRA expects this figure to be 0.95-1.0 for 2019-2020.
The Company’s average financial profile is based on an average capital adequacy assessment. The Company’s liquidity and asset quality are assessed at higher levels.
The capital adequacy assessment is based on the ratio of available capital to capital at risk. This indicator, calculated according to ACRA’s methodology, was around 1-1.5 as of June 30, 2019. ACRA assesses the Company's capital adequacy as average based on the combination of average absolute capital and limited access to capital sources.
According to ACRA’s methodology, the components of the financial profile have a limiting effect on each other. Therefore, asset quality and liquidity assessments being higher than capital adequacy does not affect the final assessment of the Company’s financial profile.
The Company’s adequate liquidity position is based on short and long-term liquidity ratios of 1.12 and 1.32, respectively.
The asset quality assessment is based on a combination of factors: the average level of the weighted average risk index of assets (2.9) and the Company’s high capital to asset ratio (0.59). In addition, ACRA notes an increase in the concentration of assets: as of June 30, 2019, the ten largest investments accounted for 57% of assets.
ACRA assesses the quality of the Company's management as satisfactory given the neutral assessments of management experience and structure, strategic vision and management, as well as risk management, corporate governance, and actuarial function.
Key assumptions
- Executing business plans according to the management’s forecast within the 12 to 18-month horizon;
- Combined ratio below 1.0.
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:
- Improved operational performance;
- Improved market position.
A negative rating action may be prompted by:
- Deterioration in operational performance;
- Decreased ratio of available capital to capital at risk
Rating components
SCA: bb.
Adjustments: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating has been 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 Insurance Company “ARSENAL” LLC was published by ACRA for the first time on December 4, 2017. 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 is assigned based on the data provided by Insurance Company “ARSENAL” LLC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the RAS and IFRS financial statements of Insurance Company “ARSENAL” LLC. The credit rating is solicited, and Insurance Company “ARSENAL” LLC participated in its assignment.
No material discrepancies between the provided information and the data officially disclosed by Insurance Company “ARSENAL” LLC in its financial statements have been discovered.
ACRA provided additional services to Insurance Company “ARSENAL” LLC. No conflicts of interest were discovered in the course of credit rating assignment.
