AM Best has downgraded and withdrawn the credit ratings of two Russian insurance companies, and placed a third under review with negative implications, according to statements from the agency.
The affected insurers were Ingrosstrakh, GIC Perestrakhovanie, and Russian Re. The first saw its long-term issuer credit rating downgraded from BB+ to BB, with its financial strength rating affirmed as B. GIC Perestrakhovanie saw its financial strength rating downgraded to B from B+ and its long-term issuer credit rating downgraded to BB+ from BBB-. Russian Re saw its financial strength rating of B- and its long-term issuer credit rating of BB- put under review with negative implications.
For all three, AM Best said in a statement: “Concurrently, AM Best has withdrawn these ratings for commercial reasons that include, but are not limited to, the sanctions recently imposed by the European Union that will ban the provision of ratings to legal persons, entities or bodies established in Russia.”
AM Best said that the balance sheets for both Ingrosstrakh and GIC Perestrakhovanie were strong. It said of Ingrosstrakh that it had a ‘[…] strong operating performance, neutral business profile and marginal enterprise risk management’.
It added: “The Long-Term ICR downgrade reflects deterioration in the company’s balance sheet strength due to further increases in geopolitical, economic and financial system risks in Russia, which is negatively affecting the valuation, liquidity and credit quality of Ingosstrakh’s investment portfolio. The Long-Term ICR downgrade also factors in the company’s reduced access to international reinsurance capacity and the risk of elevated claim costs caused by the depreciation of the Russian rouble and the associated inflationary pressures.”
For GIC Perestrakhovanie, AM Best spoke of its “[…] adequate operating performance, limited business profile, and marginal enterprise risk management. The ratings also factor in rating lift due to the implicit and explicit support that GIC Perestrakhovanie LLC receives from its parent, General Insurance Corporation of India.”
It added: “The rating downgrades reflect deterioration in GIC Perestrakhovanie LLC’s balance sheet strength due to further increases in geopolitical, economic, and financial system risks in Russia, where the company is domiciled and underwrites the majority of its business. The downgrades also factor in the risk of elevated claim costs caused by the depreciation of the Russian rouble and the associated inflationary pressures.”
AM Best spoke explicitly about Russian Re’s exposure to ‘heightened geopolitical, economic, and financial system risks’.
It added: “AM Best also notes the potential impact of inflation on the adequacy of reserves, liquidity constraints, and the disruption to Russian Re’s long-standing relationships with foreign retrocessionaires stemming from sanctions imposed on Russia and recent Russian legislation.”
The ratings agency also published the similar sentence for all three: “The ratings also are under review with negative implications due to the potential for further deterioration in economic and financial system conditions in Russia and for this to have an adverse impact on the credit profile of [the company].”
These ratings downgrades and withdrawals reflect what AM Best said would be the ‘significant fallout’ from Russia’s invasion of Ukraine. Throughout the last couple of weeks, the agency and others have moved to downgrade and turn negative the ratings of multiple Russian insurers and reinsurers.
Additionally, AM Best moved Russia to its bottom country risk tier on 10 March, dropping it from CRT-4 to CRT-5.
Back, the agency said that because of sanctions against Russia having targeted the financial system, it now faces a deeply challenging and unpredictable operating environment for insurers as a result. Volatility in capital and currency markets has increased liquidity risks. Additionally, capital controls and the impact from sanctions will negatively affect cross-border payments.
