The credit rating of British Insurance House LLC (hereinafter, the Company) is based on the Company’s satisfactory business profile, weak financial profile, and satisfactory quality of corporate governance. The Developing credit rating outlook reflects the need for the Company to comply with new regulations of the Bank of Russia.
The Company is an insurer focused on certain corporate insurance services. 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.
Key rating assessment factors
The Company's business profile is assessed as satisfactory. In 2020, the Company's operating efficiency indicators were under pressure of the provisions allocated for several major insured events. As of December 31, 2020, the combined loss ratio was 1.01, and therefore the Company's annual profit was about zero. The Company is expected to earn more in 2021, after the abovementioned provisions are released following refusals and revaluation of losses. In addition, the Company expects a decrease in its administrative expenses following its downsizing and a decrease in rental payments. The insurance premium growth rate is forecasted to remain low, lagging behind the market average.
ACRA continues to assess the diversification of the customer base as 'below medium' and the diversification of sales channels as 'medium'. The client base diversification is affected by the high concentration of the portfolio on construction industry clients. The product range quality remains 'below medium' in view of the limited range of insurance products offered by the Company.
The financial profile is 'weak' as the Company's equity is not enough to comply with the ratios set forth by the Bank of Russia in its Regulation No. 710-P, which will become binding for the Company on January 1, 2022. The ACRA methodology prescribes to limit the score for capital adequacy and/or asset quality if there is a regulatory risk on a one-year horizon. However, the Agency believes that the Company and its shareholders are able to take the necessary measures to bring the balance sheet of the Company in line with the requirements of the Bank of Russia. At the same time, the base components of the Company's financial profile are assessed at a higher level, which, together with the above, determines the financial profile score.
The current liquidity ratio calculated as per ACRA’s methodology declined to 0.94 (as of December 31, 2020), which corresponds to the 'weak' score according to ACRA’s criteria. On the other hand, ACRA expects this ratio to get back to around 1.0 after the insurance provisions are released in 2021. The long-term liquidity ratio remained at about 1.0, which allows ACRA to assess the Company’s long-term liquidity as bordering 'adequate' and 'strong'.
According to ACRA’s criteria, the Company's capital adequacy has grown due to a decline in the exposure to major risks: as of December 31, 2020, the available capital exceeded the potential loss under the stress scenario.
The asset quality is still assessed as medium, 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, the asset concentration is heightened, as the top 10 assets account for around 90% of asset value (ACRA’s safe threshold is 40%). At the same time, the high capital-to-assets ratio (0.45 in 2020) significantly increases the overall asset quality score.
The corporate governance quality is assessed as 'satisfactory'. The main risk for the Company's management system continues to be its dependence on a key executive — the CEO, who is also the owner of the Company. ACRA has maintained its neutral scores for all components of corporate governance quality.
- The Company’s business plans to be implemented in the next 12–18 months, as expected by the management;
- Combined loss ratio to be maintained at no higher than 1.0;
- The Company to comply with the Bank of Russia's Regulation No. 710-P by the end of 2021.
Potential outlook or rating change factors
The Developing outlook assumes with equal probability either an upgrade or a downgrade of the rating within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- The Company's compliance with the Bank of Russia's Regulation No. 710-P by the end of 2021.
A negative rating action may be prompted by:
- The risk of non-compliance with the Bank of Russia's Regulation No. 710-P growing up as January 1, 2022 comes closer;
- Decrease in liquidity ratios;
- Significant deterioration of operational efficiency;
- Weaker market positions.
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.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to British Insurance House LLC. No conflicts of interest were discovered in the course of credit rating assignment.