Baku, Azerbaijan, Nov. 27
By Azad Hasanli - Trend:
Fitch Ratings international rating agency has assigned AzInsurance OJSC (AzInsurance) an Insurer Financial Strength (IFS) rating of 'B+', the Outlook is Stable, said the message of the agency posted on its website Nov.27.
The rating reflects high investment risk on AzInsurance's balance sheet, the correspondingly weak capital position on a Fitch risk-adjusted basis, demanding profit repatriation by its shareholder, and material exposure to catastrophe risk.
The rating also takes into account of a strong market position and related strong profitability, mainly from AzInsurance's core insurance operations.
"AzInsurance has significant concentration risk," said the report. "Cash and bank deposits with related party banks accounted for 56 percent of AzInsurance's investments at late 2014. The other significant concentration is the covered bonds of Azerbaijan Mortgage Fund, a government agency, which represented 31 percent of the insurer's investments at late 2014."
AzInsurance holds an exclusive position in a few segments of the local insurance sector and has high bargaining power. This exclusive position translates into strong underwriting profitability.
"Azerbaijan is exposed to natural catastrophic risks, with the worst scenario being an earthquake in Baku, the largest city of the country," said the report. "AzInsurance covers domestic homeowners' property risks (a compulsory line) and is also exposed through its commercial portfolio in Baku. According to an independent assessment made at late 2013, a 1-in-250 year earthquake could result in 39 million manats ($37 million) gross loss for AzInsurance. Currently available reinsurance protection would cover up to $15 million."
The official exchange rate for November 27 is 1.0511 AZN/USD.
AzInsurance is a major Azerbaijani non-life insurer, underwriting both the commercial and retail businesses. It has a particularly strong presence in the insurance of imported cargo, the 'green card' segment of the motor third-party liability insurance, and compulsory homeowners' property insurance. Positively, even excluding the most profitable cargo line (30 percent of gross written premium in 2014), AzInsurance still generates significant underwriting profit.
Improved quality and diversification of the investment portfolio and reduced pressure of asset risks on the risk-adjusted capital position could lead to an upgrade, Fitch said. Conversely, capital depletion due to investment losses could result in a downgrade.
"AzInsurance" OJSC has been functioning since 2006 and has branches and representative offices in many districts of the country: Sumgait, Ganja, Lankaran, Shirvan, Sheki, Gabala, Tartar, Yevlakh and Shamakhi.
The fees of the insurance company in January-September 2015 amounted to 24.84 million manats with payments worth 5.56 million manats, according to the State Insurance Supervision Service under the Azerbaijani Finance Ministry.