Fitch Affirms Allianz Russia at 'BBB-'; Outlook Stable
KEY RATING DRIVERS
The IFS Rating is based on 100% ownership of Allianz Russia by Allianz SE (IFS AA/Stable), one of the world's largest insurance groups but is capped by Russia's sovereign Long-Term Local-Currency Issuer Default Rating (IDR) of 'BBB-'. The rating also takes into account Allianz Russia's weak standalone capital position and operating performance. Fitch views Allianz Russia as strategically 'Important' to Allianz SE based on the agency's insurance group rating methodology. This view is supported by the track record of parent support and its strategic commitment to maintaining a direct presence in Russia.
The Russian subsidiary makes a small contribution to Allianz SE's total assets and written premiums but has an important role in maintaining the franchise of the Allianz group in Russia. In 2016 Allianz Russia continued its portfolio restructuring process, completing the transfer of its voluntary health insurance portfolio to its sister company Allianz Life Insurance Company in February 2016. Allianz Russia also sold its 100% share in OJSC IC Rosno-MS to a third party and discontinued compulsory health insurance in November 2016. After the completion of this restructuring, Allianz Russia is focusing on its core business lines - commercial property and casualty, marine, aviation, transport and financial risks.
According to Fitch's Prism factor-based capital model (Prism FBM), Allianz Russia scored below 'Somewhat Weak' based on 2016 results, in line with 2015's levels. Fitch does not expect a notable strengthening in capital adequacy over the next 12 months as the insurer plans to reduce capital through dividend payment. Allianz Russia focuses on regulatory solvency compliance as the key target in its capital management. The regulatory solvency margin stood at 274% at end-2016, and Allianz Russia plans to maintain regulatory solvency above 200% at end-2017 after the dividend payment that took place in June 2017. In 2016 the company's combined ratio improved to 100% from 118% in 2015 and 149% in 2014. The company managed to report an improved underwriting result of RUB3 million in 2016 after a underwriting loss of RUB 1.5 billion in 2015, with the loss ratio falling to 12% from 65% in 2015 and 100% in 2014. However, the underwriting result was under pressure from an increased commission ratio of 67.8% (2015: 49.6%) which was partially offset by an increased reinsurance commission ratio of 18.5% (2015: 6.7%). In 2016 Allianz Russia reported net income of RUB2.4 billion, compared with a net loss of RUB 703 million in 2015 based on IFRS accounting. The company's financial result benefited from the sale of its 100% share in OJSC IC Rosno-MS in November 2016, with the gain on disposal and the profit for the period from discontinued operations totalling RUB 1.8 billion and RUB475 million respectively. As a result, net income return on equity reached 75% in 2016.
A change in Russia's Long-Term Local-Currency IDR would lead to a change in Allianz Russia's IFS rating. A weakening of the parent's willingness to support the Russian subsidiary or a reduction in its strategic importance to the parent would likely result in a downgrade.