S&P Raises Neftepolis Ratings to ‘B’

March 2, 2006

Standard & Poor’s Ratings Services announced that it has raised its long-term counterparty credit and insurer financial strength ratings on Russia-based insurer Neftepolis Insurance Co. LLC to “B” from “B-“, and its Russia national scale rating on Neftepolis to “ruA” from “ruBBB-“. S&P also removed the ratings from its CreditWatch, where they had been placed with positive implications on Sept. 12, 2005. The outlook is positive.

“The upgrade reflects the removal of previous uncertainty regarding Neftepolis’ financial stability and competitive position that may have been caused by its former 100 percent parent, OJSC Oil Company Rosneft,” stated S&P credit analyst Tatiana Grineva.

S&P said: “The ratings on Neftepolis had historically been capped by the ongoing uncertainty surrounding Rosneft’s ability to survive as an ongoing concern, due to its highly leveraged financing of the acquisition of OAO Yuganskneftegaz, an ex-subsidiary of distressed oil company OAO NK Yukos (D/–/–), and its resultant vulnerable financial strength (as reflected in the ratings on Rosneft).

“This cap has now been removed, following the acquisition of Neftepolis by SOGAZ Insurance Group at the end of 2005. The ratings on Neftepolis reflect the high industry risk, high country risk factors, and weak quality of investments, by international standards, currently inherent to insurers in the Russian market.”

However, S&P also indicated that these negative factors are mitigated “by Neftepolis’ solid track record of good operating performance, potentially strong position and ability to go from strength to strength in its oil-related insurance niche, and strong management team. ”

The rating agency also noted that the positive outlook reflects its “expectation that the potential benefits arising from Neftepolis’ merger with SOGAZ will be realized, as well as the potential significant improvement in the credit quality of Neftepolis’ investment portfolio, which will be required by the regulator before 2007.

“Either of these events could lead to an upgrade. The ratings will remain unchanged, however, should the expectations outlined below fail to materialize: — Neftepolis is expected to be successfully integrated within SOGAZ and ongoing parental support should be provided for Neftepolis’ growth and development, including financial support if such a need arises. — The commercial book is expected to represent significantly more than 50 percent of gross premiums written where Neftepolis has competitive advantages, particularly in its oil-related insurance niche. — Reliance on Rosneft’s premium income is expected to lessen, although Rosneft is to remain as one of Neftepolis’ major clients, contributing about 15 percent-20 percent to overall gross premium income. — Good profitability levels are expected to be maintained. — The investment portfolio is expected to be reallocated to align with regulatory requirements and so that none of the individual providers exceeds 20 percent of total invested assets.”

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