AM Best, the credit rating agency, has upgraded the Financial Strength Rating of AzRe Reinsurance, OJSC (AzRe) to B++ (Good) from B+ (Good), and its Long-Term Issuer Credit Rating to “bbb” (Good) from “bbb-” (Good), with a stable outlook for both ratings.
These upgrades reflect AzRe’s strong balance sheet, which AM Best categorises as very strong, as well as its solid operating performance.
However, the company’s business profile is still considered limited, and its enterprise risk management (ERM) is rated as marginal.
The rating improvements are primarily driven by enhancements in AzRe’s balance sheet, particularly through a greater diversification of investments beyond Azerbaijan.
AzRe’s financial strength is supported by its consistently strong risk-adjusted capitalisation, well above the level required for the highest rating, as assessed by Best’s Capital Adequacy Ratio (BCAR).
Since 2023, the company has effectively reduced its exposure to Azerbaijan by increasing its holdings in foreign fixed-income securities, which made up 35% of its total invested assets by June 2024, up from less than 10% at the end of 2023.
A rating constraint is the company’s limited catastrophe retrocession coverage for its expanding international portfolio, though the portfolio is geographically well-diversified.
AzRe has a history of strong operating performance, with a combined ratio of 63.6% and a return on equity of 24.4% in 2023, as calculated by AM Best. The company’s earnings are bolstered by favourable investment returns, reflecting the high interest rate environment in Azerbaijan.
AM Best expects AzRe to maintain strong performance in the near term, supported by product diversification and favourable market conditions, although the company’s exposure to large risks could lead to some volatility.
AzRe is a notable participant in the domestic reinsurance market, though it is smaller in comparison to some of the larger global players.
The company is working to grow its presence in international markets, where it can take advantage of increasing reinsurance premiums, while also encountering significant competition from established reinsurers. AM Best will continue to track the company’s efforts to expand and its development of enterprise risk management (ERM) capabilities.
