The credit rating of VSK Insurance House (hereinafter, VSK or the Company) is based on the Company's moderately strong business profile, strong financial profile, and adequate management quality.
The credit rating outlook has been changed to Negative to reflect ACRA's expectations that the Company's standalone creditworthiness assessment (SCA) may be affected by a possible downgrade in the business profile score following a decrease in the operating performance metrics. The latter is due to the growth in the combined loss ratio over the past two years, its current value exceeding 1.0, and the Company's limited ability, in ACRA's opinion, to push it down in the near future.
VSK is a parent company of a large Russian insurance group. It ranked eighth in terms of insurance premiums in 2020. The Company operates a broad regional network.
KEY ASSESSMENT FACTORS
The Company’s moderately strong business profile is associated with its strong market positions and moderate operating performance. The market share of VSK amounted to 5.6% last year. The Company holds the strongest positions in the motor hull insurance sector (it is among the top five, with a 13% market share). The Company is among the top ten Russian insurers in terms of voluntary health insurance, accident insurance, corporate property and personal property insurance, compulsory motor third party liability insurance (CMTPLI), and other types of insurance. Given the low share of the largest corporate customers in the insurance portfolio and the wide geography of the retail portfolio, VSK’s client base diversification, as well as the diversification of its sale channels, are assessed as high. ACRA categorizes VSK’s product range quality as good in view of the Company’s ability to meet its customers’ needs for insurance protection against major property risks and insurance protection for individuals. In 2020, motor insurance (hull insurance and CMTPLI) was the largest segment in the Company's business and amounted for about 49% of the Company’s total insurance portfolio. The Company puts much effort in the promotion of various programs in the VHI and corporate insurance segment.
The operating performance assessment has been downgraded relative to the last year's level, taking into account both the actual performance of the Company and ACRA's forecast. At the end of 2020, the combined loss ratio was 1.01 (0.94 a year earlier), and by the end of 2021, it is expected to rise to 1.02. This increase is mostly caused by higher losses in the auto insurance and VHI segments. ACRA also notes an increase in acquisition costs, which is compensated, to some extent, by lower administrative costs. In the next two years, the Company plans to push and hold the combined loss ratio below 1.0.
The strong financial profile assessment is underpinned by the high capital adequacy, asset quality, and liquidity assessments. The ratio of available capital to capital-at-risk, calculated according to ACRA’s methodology, amounted to 1.5 on June 30, 2021, which, combined with a high absolute capital (more than RUB 33 bln), explains the high capital adequacy assessment. ACRA notes that the Company's available capital calculated in accordance with the Agency's methodology is under certain pressure from the growing acquisition costs.
The asset quality is assessed as high because the Company invests primarily in low-risk assets and maintains a sufficiently high capital-to-assets ratio (0.21 as of June 30, 2021). According to ACRA’s criteria, the concentration of assets is acceptable and does not affect the asset quality assessment.
The strong liquidity position is determined by the high short-term and long-term liquidity ratios: 1.4 and 1.2, respectively.
The Company's management quality is assessed as adequate. ACRA continues to maintain its positive view of the experience of the Company's management, its structure and actuarial function. The strategic vision and management factor, as well as the risk management function and the corporate governance quality are still assessed as neutral, and ACRA notes the consistent development of the risk management system at the Company.
The Company maintaining its share in the core market segments;
The Company maintaining its capital adequacy and asset management policies.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Negative outlook assumes that the rating may be downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Improved ratio of available capital to capital-at-risk.
A negative rating action may be prompted by:
Continued decline in operational performance metrics;
Deteriorating asset profile;
Declining available capital.
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 under 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 VSK was published by ACRA for the first time on October 3, 2019. 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 VSK, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the GAAP and IFRS financial statements of VSK. The credit rating is solicited, and VSK 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 VSK. No conflicts of interest were discovered in the course of credit rating assignment.