A.M. Best has affirmed Credit Ratings of AzRe Reinsurance, OJSC

A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of "bbb-" of AzRe Reinsurance, OJSC (AzRe) (Azerbaijan). The outlook of these Credit Ratings (ratings) remains stable.

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

AzRe's balance sheet strength is underpinned by consolidated risk-adjusted capitalisation that is at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR), as well as good quality retrocession and a conservative investment allocation by asset type. An offsetting rating factor is the company's exposure to the high financial system risk in Azerbaijan, resulting in its investments having a vulnerable credit quality.

AzRe has achieved strong operating results in recent years, partially attributable to relatively low loss ratios in Azerbaijan when compared to more mature insurance markets, as well as high investment yields reflective of the country's high interest rate environment. Whilst AzRe's performance metrics remain strong, the results have deteriorated in recent years, as a consequence of the company's expansion. Performance is subject to volatility due to AzRe's exposure to large losses and the evolving operating environment in Azerbaijan.

AzRe remains one of the leading players in the local (re)insurance market where it benefits from its profile as Azerbaijan's only specialised reinsurer. Negatively affecting A.M. Best's assessment of the company's business profile is its highly concentrated portfolio, by geography and line of business, with a significant share of gross written premiums derived from personal accident business, as well as its small size by international standards. The AzRe group has taken steps to diversify its profile by developing life and direct insurance businesses through subsidiaries and by entering foreign markets, mainly in the Middle East and former Soviet countries. A.M. Best believes that profitable expansion will be challenging, given the difficult operating conditions in Azerbaijan and intense competition in the global reinsurance segment.

Source: A.M.Best

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