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 due to the better asset quality caused by a growth in the volume of high-quality assets and a decline in the concentration on the largest counterparties.
The Company's credit rating reflects its high business profile, strong financial profile, and adequate governance quality.
ACRA also is of the opinion that the likelihood of support for the Company from its shareholder with a high creditworthiness (hereinafter, the parent company, the Supporting Entity, or the SE), is very high. The Supporting Entity is the parent company of a group of companies (hereinafter, the Group). The assessment of the likelihood of support is based on the Methodology for Analyzing Rated Entities Related to a State or a Group, effective from April 19, 2021. However, the support assessment does not affect the credit rating of the Company since the Supporting Entity's creditworthiness assessment (SECA) and the Company's standalone creditworthiness assessment (SCA) are equal.
«Sovcombank insurance» (JSC) is a universal insurance company that has operated in the Russian insurance market since 1993. In Q1 2021, the Company was 22nd in terms of insurance premiums (27th in the last four quarters, 29th in 2020), 16th in the voluntary health insurance, and 14th in the motor hull insurance.
Key rating assessment factors
The Company’s strong business profile stems from its stronger market positions 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. 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 Q1 2021: motor hull insurance (21%), voluntary health insurance and international travel insurance (15%), financial risk insurance (13%), obligatory motor third-party liability insurance (13%). As in previous years, the Company’s development priorities going forward are motor insurance and loan/mortgage insurance.
In 2020, the growth rate of the Company’s insurance premiums amounted to 131%, which was significantly higher that the market average. In Q1 2021, the Company continued to expand aggressively its portfolio of insurances and the volume of premiums by more than twice exceeded the volume demonstrated in Q1 2020. ACRA expects the Company's growth rate to continue to outstrip the market, 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 the cost-declining trend started in Q4 2020 is still continuing in 2021.
The financial profile assessment has been upgraded to 'strong' to reflect an upgrade in the asset quality assessment, mainly due to an increase in the volume of low-risk assets (risk index of 2.1 in Q1 2021), as well as an increase in the capital-to-asset ratio to 0.31 (0.27 in late 2020). At the same time, ACRA notes a decrease in the concentration of assets on the ten largest counterparties to 47%, which slightly exceeds the threshold value of 40% and allows for reducing the concentration penalty that affects the asset quality assessment.
ACRA has retained the 'high' capital adequacy assessment of the Company. As of March 31, 2021, the ratio of available capital to capital at risk, calculated as per ACRA’s methodology, was 2.8. Combined with the high level of absolute capital, this defines the Company’s capital adequacy assessment.
The Company’s adequate liquidity position is based on current and long-term liquidity ratios — 1.2 and 1.4, respectively.
The management quality is assessed as adequate given the Company’s positive assessments of risk management, corporate governance, and strategic vision and management.
ACRA assesses the likelihood of extraordinary support from the Supporting Entity as very high. This conclusion is based on the following:
- Legal ties, the SE has full strategic and operational control over the Company, the Supporting Entity's representatives are included in the board of directors of the Company;
- The Company's authorized capital was replenished by the Supporting Entity;
- The Company's development is a part of the Group's strategy;
- As the Company operates under a similar brand, a default of the Company, in ACRA's opinion, would be associated with the SE, which may face serious reputational risks.
However, given that the SECA 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 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:
- 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 Rated Entities Related to a State or a Group, 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.
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 no additional services to Joint-Stock Company «Sovcombank insurance». No conflicts of interest were discovered in the course of credit rating assignment.