S&P Assigns ‘BB’ Rating to Russia’s Ingosstrakh

May 14, 2004

Standard & Poor’s Ratings Services announced that it has assigned its “BB” long-term counterparty credit and insurer financial strength ratings to Russian insurer Ingosstrakh Insurance Co. with a stable outlook.

S&P also said it had assigned its “ruA”‘ Russia national scale rating to the insurer. “The ratings on Ingosstrakh reflect the high level of industry risk associated with the company’s concentration in and exposure to the underdeveloped and rapidly growing Russian insurance market, and the significant investment risk due to the relative immaturity of the Russian financial markets,” stated S&P credit analyst Ashley Gill. “These factors are partially mitigated by Ingosstrakh’s strong competitive position, particularly in commercial risks, good operating performance, and satisfactory capitalization.”

S&P described Ingosstrakh as “part of a composite insurance group that operates primarily in the Russian Federation (foreign currency BB+/Stable/B, local currency BBB-/Stable/A-3), although its activities in the Commonwealth of Independent States and Europe are increasing. Shareholdings are widespread, with the majority of shares held by two individuals and Russia-based investment group Basic Element (not rated).”

The rating agency said the stable outlook reflects its “expectation that Ingosstrakh will maintain its strong competitive position in the commercial sector by leveraging its existing, market-leading expertise. The development of its competitive position in personal lines will be gradual, but will be assisted by existing operational strengths. Activities of subsidiaries are expected to come under greater parental control and demonstrate measured growth.

“Earnings are expected to weaken, but remain good. Rapid growth, competitive pressures, and reducing investment yields are all expected to take their toll on earnings in the next two to three years. Nevertheless, retained earnings are expected to remain positive over the next three years to minimize capital funding requirements. Capitalization is not expected to deteriorate, despite the significant expected growth. Capital requirements are expected to be met by the shareholders or through an IPO.”

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