A.M. Best assigns Credit Ratings to Russian Reinsurance Company JSC

A.M. Best has assigned a Financial Strength Rating of B (Fair) and a Long-Term Issuer Credit Rating of "bb+" to Russian Reinsurance Company JSC (Russian Re) (Russia). The outlook assigned to these Credit Ratings (ratings) is stable.

The ratings reflect Russian Re's balance sheet strength, which A.M. Best categorizes as strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.

The company's balance sheet strength is underpinned by risk-adjusted capitalization at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR), and good quality retrocession panel. Offsetting these positive rating factors is the relatively low liquidity of Russian Re's investment portfolio, with over a third of invested assets held in real estate. Additionally, the company reported adverse reserve development in the past, prior to implementing a revised reserving approach from 2015, which incorporates a more appropriate classification of risks.

Russian Re's operating performance is marginal, with the company reporting a five-year weighted average combined ratio of 106.2% and return on equity of 5.1% (2013-2017). Technical losses were reported in the four years prior to 2016, due to a combination of factors, including poor underwriting experience in the Middle East and North Africa region, economic challenges in the domestic market and a relatively high expense ratio due to the company's lack of scale. Positive underwriting results were achieved in 2016, 2017 and the first half of 2018, with the combined ratio maintained below 90%. The improvement was achieved through corrective measures taken by the management, including exiting unprofitable territories and tightening underwriting controls. Given the historical volatility, uncertainty exists as to whether the improvements in Russian Re's performance will be sustained over a longer term. The company's investment results also have been subject to fluctuations, particularly due to foreign exchange movements, but have been positive in most years.

A.M. Best's assessment of Russian Re's business profile as limited stems from its relatively small size, with gross written premiums (GWP) of approximately USD 15 million in 2017, and limited geographical diversification, with approximately 75% of GWP sourced from Russia. The company maintains a 3% share in the local reinsurance market and has yet to demonstrate a successful strategy of consistent and profitable international expansion. The company's medium-term plans include further growth in Asia Pacific (where South Korea accounts for over half of Russian Re's premium volumes) and entering the Latin American market.

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