FITCH: Eximgarant's Financial Strength (IFS) rating affirmed at 'B-'. The Outlook is Stable.

MOSCOW, June 28 (Fitch) Fitch Ratings has affirmed Export-Import Insurance Company of the Republic of Belarus's (Eximgarant) Insurer Financial Strength (IFS) rating at 'B-'. The Outlook is Stable.

KEY RATING DRIVERS The rating and Outlook mirror Belarus's 'B-'/Stable Local Currency Long-Term Issuer Default Rating (IDR) and reflect the insurer's 100% state ownership, presence of guarantees for insurance liabilities under compulsory lines, fairly strong capital position, and sustainable, albeit volatile, profit generation. The rating also takes into account the low quality of the insurer's investment portfolio and moderate exposure to domestic financial risks.

The Belarusian state has established strong support for Eximgarant through its legal framework to develop a well-functioning export insurance system. The state's propensity to support the company has been demonstrated by the government guarantee on export insurance risks, significant capital injections in previous years and the explicit inclusion of Eximgarant's potential capital needs in Belarus's budgetary system.

Eximgarant is adequately capitalised for its rating, as measured by Fitch's Prism factor-based capital model. The insurer maintains an exceptionally strong nominal level of capital relative to its business volumes, with a Solvency I-like statutory ratio of 85x at end-3M16. Eximgarant has a record of positive profitability in the last five years, but with a sharp decrease of net income to BYR 9 billion in 2014 due to a weaker underwriting result.

In 2015 a positive underwriting result, strong investment income and a significant one-off FX effect boosted profitability to BYR 160 billion. In 3M16 Eximgarant reported a net income of BYR 81 billion. The company continued to benefit from the depreciation effect of the Belarusian rouble and solid investment income, which respectively added BYR 163 billion and BYR 17 billion to net income, fully offsetting a negative underwriting result of BYR 7 billion.

Eximgarant's volatile underwriting performance is a key driver behind the profitability pattern. The improved underwriting result in 2015 was mainly due to positive underwriting performance on export insurance risks, amounting to BYR 68 billion (2014: BYR 3 billion), with subrogation recoveries accounting for BYR 42 billion or 32% of an improved combined ratio (2014: subrogation loss of BYR 0.1 billion). This helped contribute to a positive underwriting result on the overall portfolio of BYR 37 billion, compared with a net underwriting loss of BYR 30 billion in 2014. In 3M16 Eximgarant's underwriting result on export risks was again negative at BYR 5 billion, which worsened Eximgarant's underwriting result to BYR 7 billion.

The insurer's three-year average loss ratio increased to 68% to in 2015 and to 79% in 3M16 (2015: 83%, 2014: 74%). Eximgarant's investment portfolio is of low quality, reflecting the credit quality of bank deposits, which is constrained by sovereign risks and the presence of significant concentrations by issuer. The investment profile is attributable to the narrowness of the local investment market and strict regulation of the insurer's investment policy. Insurance of domestic financial risks is one of the key lines in Eximgarant's portfolio with a 15% weighting in 2015. These risks are typically non-core business for traditional non-life insurers and export credit agencies, are not covered by government guarantees, use up a significant amount of insurers' capacity and may lead to concentrated reinsurance protection.

Since 2016 a number of regulatory initiatives have been introduced to strengthen discipline in the domestic financial risks market.

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