The credit rating of Joint-Stock Company «Sovcombank insurance» (hereinafter, «Sovcombank insurance» (JSC), or the Company) has been upgraded in view of an upgrade of the financial profile assessment based on the better capital adequacy assessment. In February 2021, the Company's equity was increased by RUB 1 bln through the purchase of additional shares issued by the Company by its shareholder (hereinafter, the parent company, the Supporting Organization, or the SO). The SO is the parent company of a group of companies (the Group).
The Company's equity has increased as well, following capitalization of RUB 285 mln net profits earned in 2020.
The Company's credit rating and credit rating outlook reflect its high business profile, moderately strong financial profile, and adequate governance quality, as well as the support from the parent company.
«Sovcombank insurance» (JSC) is a universal insurance company that has operated in the Russian insurance market since 1993. In 2020, the Company was 29th in terms of insurance premiums, and 15th and 16th in the motor hull insurance and voluntary health insurance segments, respectively.
Key rating assessment factors
The Company’s strong business profile stems from its stable market position and fairly strong operating performance demonstrated in the past year and expected in the medium term.
The sales channels of the Company have remained highly diversified. In 2020, direct sales accounted for around 30% of the Company’s portfolio, 24% of insurance contracts were concluded through the bank sales channel, 20% were concluded by brokers, and 17% were concluded by agent car dealers. ACRA expects the bank sales channel to grow significantly. The diversification of the client base and quality of the product range are assessed as medium. The Company’s clients are mainly concentrated in Saint Petersburg and Moscow. The Company’s insurance portfolio is moderately diversified, with the following accounting for premiums collected in 2020: motor hull insurance (24%), obligatory motor third-party liability insurance (19%), voluntary health insurance and international travel insurance (13%), financial risk insurance (8%). As in previous years, the Company’s development priorities going forward are motor insurance and loan/mortgage insurance.
In 2020, the rate of growth of the Company’s insurance premiums amounted to 13%, which is significantly higher that the market average. ACRA expects this growth to continue to outstrip the market rate, partially thanks to the use of the Group's sales channels. The combined loss ratio (CLR) for 2020 was 101%, while the loss ratio for the same period declined to 42%, 4% less than in 2019. The Company has plans to decrease the CLR down to 70% by pushing down acquisition and administrative costs. ACRA notes that those costs have been declining since Q4 2020.
The financial profile assessment has been upgraded to moderately strong to reflect a significant upgrade in the capital adequacy assessment caused by an increase in the Company's capitalization.
As of December 31, 2020, the ratio of available capital to capital at risk, calculated as per ACRA’s methodology (taking into account the parent company's purchase of additional shares issued by the Company in February 2021), was 2.6. Combined with the high level of absolute capital, this defines the Company’s capital adequacy as high.
The moderately high asset quality assessment reflects the fact that the Company invests mainly in assets with low risks (risk index 2.2) and maintains a high capital to asset ratio (0.27). ACRA notes that the concentration of assets on the top ten counterparties has increased to 54%, which downgrades the asset quality assessment.
The Company’s adequate liquidity position is based on current and long-term liquidity ratios — 1.18 and 1.3, respectively.
The management quality is assessed as adequate given the Company’s positive assessments of risk management, corporate governance, and strategic vision and management.
The likelihood of extraordinary support from the Supporting Organization is high. This conclusion is based on the following:
- Legal relationships;
- The Company's authorized capital was replenished by the SO;
- The Company is considered a part of the Group in implementing its plans for the development of car lending and leasing services;
- Issuance documents relating to the SO's bonds include cross-default provisions for the Company's liabilities.
However, given that the Supporting Organization’s rating is at the level of the standalone creditworthiness assessment (SCA) of the Company, the support factor does not affect the final credit rating of the Company.
- Implementing the business plans in accordance with the management’s forecast within the 12 to 18-month horizon;
- Maintaining the asset management and underwriting policies.
Potential outlook or rating change factors
The Positive outlook assumes that the rating will most likely be changed within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- An upgrade of the Supporting Organization's rating;
- Increased asset diversification and sustainable asset quality;
- Significant improvement in the market position.
A negative rating action may be prompted by:
- Weaker operational performance;
- Decreased ratio of available capital to capital at risk;
- Significant increase in the asset concentration and decrease in the capital to asset ratio.
There are no outstanding issues.
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, the Methodology for Analyzing Member Company Relationships Within Corporate Groups, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating of Joint-Stock Company «Sovcombank insurance» was published by ACRA on May 12, 2020 for the first time. 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 based on the data provided by Joint-Stock Company «Sovcombank insurance», information from publicly available sources, and ACRA’s own databases. The rating analysis was conducted using the GAAP and IFRS financial statements of Joint-Stock Company «Sovcombank insurance». The credit rating is solicited, and Joint-Stock Company «Sovcombank insurance» participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by Joint-Stock Company «Sovcombank insurance» in its financial statements have been discovered.
ACRA provided no additional services to Joint-Stock Company «Sovcombank insurance». No conflicts of interest were discovered in the course of credit rating assignment.