The credit rating of British Insurance House LLC (hereinafter, BIH or the Company) is based on the Company’s satisfactory business profile, moderately weak financial profile, and satisfactory quality of corporate governance.
The credit rating outlook has been upgraded from Stable to Positive on the basis of an expected improvement of the capital adequacy assessment, which currently limits BIH’s rating.
BIH is an insurance company focused on certain types of corporate insurance. The Company’s insurance portfolio mostly includes insuring the liability and property of construction companies, and voluntary medical insurance. The ultimate beneficiary of the Company is P. A. Naumenko, who controls more than 99% of its capital. In 2019, the Company made a strategic decision to refuse to enter into insurance contracts that are considerably larger than its net retention, and decided to focus on the abovementioned priority areas.
Key rating assessment factors
Satisfactory business profile. The change to the strategic positioning of BIH in the insurance market has led to a fall in the Company’s operating indicators and a lower market position, which in turn has resulted in a lowering of the business profile assessment (previously the business profile assessment was moderately strong). Nevertheless, this did not impact the final creditworthiness assessment, which is primarily determined by the Company’s weaker financial profile assessment.
In ACRA’s opinion, the decision to impose liability limits for contracts and increased competition from larger players give rise to the risk of the Company lagging behind in terms of the growth of its insurance portfolio compared to average market indicators. In addition, ACRA notes the expected increase of the combined ratio to almost 1 in connection with the growth of the share of regular expenses in the cost price, the unclear loss-making component of new products, and the increased share of voluntary health insurance in the structure of BIH’s insurance portfolio.
ACRA continues to assess the diversification of the customer base as below average and the diversification of sales channels as average. The client base diversification assessment is affected by the high concentration of the portfolio on construction industry clients. The product range quality assessment has been lowered to “below average” in connection with additional limits on the range of insurance services offered by the Company.
The moderately weak financial profile is based on the relatively low assessments of current liquidity and capital adequacy. The asset quality assessment is higher, however, in accordance with ACRA’s methodology, it has no impact on the Company’s financial profile assessment.
The current liquidity ratio, calculated in accordance with ACRA’s methodology, remained at 1.0 in 2019, which corresponds to a weak assessment according to ACRA’s criteria. The long-term liquidity remained at above 1.0, which allows ACRA to assess the Company’s long-term liquidity as strong.
According to ACRA’s criteria, the capital adequacy of BIH is still low: a combination of the two stress scenarios — a natural disaster and a refusal of any of the reinsurers to cover the corresponding losses — may result in the Company being unable to perform its liabilities to clients. At the same time, when contracts with high liability limits expire, which is expected to happen before the end of this year, the capital adequacy assessment may be increased considerably, which will have a positive impact on the final assessment of the financial profile and may lead to a rating upgrade. A capital injection performed by the shareholder of BIH may also have a positive effect on the capital adequacy assessment.
The quality of the Company’s assets is assessed as average, which reflects that a large proportion of the assets have a high risk index: real estate investments account for about 50% of the total value of consolidated assets. In addition, there is a heightened concentration of assets, as the top 10 assets account for around 90% of asset value (ACRA’s safe threshold is 40%). At the same time, the high ratio of capital to assets (0.54 in 2019) significantly increases the overall asset quality assessment.
The quality of corporate governance is satisfactory. The main risk for BIH’s management system continues to be its dependence on a key executive — the CEO, who is also the owner of the Company. However, ACRA notes that corporate procedures are playing a larger role, in particular, the application of risk management in the Company’s governance procedures. The corporate governance assessment may be upgraded if facts indicate the effectiveness of these procedures.
- Implementation of the Company’s business plans in the next 12–18 months, as expected by the management;
- Combined loss ratio at no higher than 1.
Potential outlook or rating change factors
The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Higher capital adequacy while maintaining the liquidity position.
A negative rating action may be prompted by:
- Decrease in liquidity ratios;
- Significant deterioration of operational efficiency;
- Weaker market positions.
Standalone creditworthiness assessment (SCA): bb-.
No outstanding issues have been rated.
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Insurance Organizations on the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of British Insurance House LLC was published by ACRA for the first time 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 GAAP financial statements of British Insurance House LLC. The credit rating is solicited, and British Insurance House LLC participated in its assignment.
No material discrepancies between the provided data 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.