AzRe gains B+ rating
Azerbaijan’s lead reinsurer AzRe Reinsurance (AzRe) has received a solid rating from rating agency AM Best.
The only pure domestic reinsurer in Azerbaijan received a financial strength rating of B+ (Good) and an issuer credit rating of “bbb-”. The outlook assigned to both ratings is stable.
The ratings reflect the reinsurer’s strong risk-adjusted capitalisation and operating performance, as well as its solid profile as the sole reinsurer in the domestic market. Partly offsetting these factors are the high concentration risk inherent within AzRe’s underwriting portfolio and the execution risk associated with the company’s expansion strategy.
AzRe’s strong risk-adjusted capitalisation reflects its low net underwriting leverage. In 2013, AzRe reported shareholders’ funds of AZN 49 million ($62 million) relative to net written premiums of AZN 39 million ($50 million). The company’s balance sheet strength is further supported by the high credit quality of its reinsurance panel and its conservative investment strategy, with over 90 percent of investments in cash and bank deposits. Going forward, AzRe’s risk-adjusted capitalisation is expected to remain supportive of its expansion plans, with an average annual growth of approximately 10 percent in net premium volumes anticipated in the near term.
AzRe has a 12 percent share of the whole re/insurance market and underwrites a portfolio of mainly short-tailed risks sourced predominantly from the domestic market.
A negative rating factor is the high concentration risk inherent in AzRe’s underwriting portfolio. In particular, the company’s business is dominated by personal accident insurance, which represents approximately half of its portfolio on a net basis. Additionally, uncertainty exists with AzRe’s strategic plans to expand into overseas markets, primarily to the neighbouring former Soviet Union countries and the Middle East. A.M. Best believes that AzRe faces significant challenges with the execution of its strategy due to the highly competitive environment and AzRe’s limited profile and expertise in these markets. However, it is understood that AzRe’s overseas expansion will be undertaken on a conservative basis.
