Best Affirms SOVAG’s Ratings; Outlook Stable

July 18, 2011

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and the issuer credit rating of “bbb” of Germany’s SCHWARZMEER UND OSTSEE Versicherungs-Aktiengesellschaft SOVAG, both with stable outlooks

Best noted that “SOVAG’s risk-adjusted capitalization is expected to remain strong, despite some weakening due to recent unfavorable underwriting performance. A more stable position is anticipated in future supported by better underwriting performance and SOVAG’s substantial equalization reserves.

“Rate strengthening for German motor business and a reduction in the volume of motor fleet business written in 2011 are expected to support improving underwriting performance.”

However Best also said that “SOVAG’s high combined ratio in 2010 of 122 percent reflects soft rates for German motor business (2010: 47 percent of net premiums written) as well as the impact of severe weather conditions in continental Europe.”

Best added that it “does not believe that SOVAG will be required to pay significant dividends to its investors, Volga Resources SICAV-SIF S.A. (Volga Resources) and Sogaz Insurance Company OJSC (SOGAZ).

Best also explained that SOVAG’s business profile “remains good as a specialist insurer of risks emanating from Russia and the Confederation of Independent States, and as a leading provider of insurance cover for Russian immigrants in Germany. In 2011, gross premiums written are likely to increase from €93.5 million [$131.46 million] in the previous year, due to increased underwriting of property business.

In conclusion Best said it “believes that the involvement of SOGAZ (shareholding of 45.9 percent acquired in December 2010) will help further develop SOVAG’s business profile within the Russian market.”

Source: A.M. Best

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