May 25, 2017 / 1:40 PM / 4 months ago

Fitch Affirms Eximgarant of Belarus at 'B-'; Outlook Stable

(The following statement was released by the rating agency) MOSCOW/LONDON, May 25 (Fitch) Fitch Ratings has affirmed Export-Import Insurance Company of the Republic of Belarus's (Eximgarant) Insurer Financial Strength (IFS) Rating at 'B-'. The Outlook is Stable. KEY RATING DRIVERS The rating reflects the insurer's 100% state ownership, presence of guarantees for insurance liabilities under compulsory lines, adequate capital position, and sustainable profit generation. The rating is negatively impacted by an increased exposure to domestic financial risks accompanied by a drop in export credit insurance and the low quality of the insurer's investment portfolio. The Belarusian state has established strong support for Eximgarant through its legal framework to develop a well-functioning export insurance system. The framework provides a government guarantee on export insurance risks. It has led to significant capital injections in previous years and explicitly includes Eximgarant's potential capital needs in Belarus's budgetary system. Based on Fitch's Prism FBM capital model, Eximgarant's capital level is "extremely strong" based on end-2016 financial results. However the assets backing Eximgarant's capital position are highly concentrated and may not be liquid in a stressed scenario, with BYN321 million being held in local government bonds. The Solvency I-like statutory ratio stood at 39x at end-2016, but this does not consider asset side risks, which are significant for the company due to large debt holdings linked to the sovereign. Eximgarant's considerable growth of financial risk insurance to 41% of gross written premiums (GWP) (excluding export GWP) or BYN29 million in 2016 from 23% or BYN8 million in 2015 is due to a toughening of monetary and credit policy the Belarusian government enacted in 2016. As a result, the domestic financial risk exposure to equity, measured as the ratio of the sum insured under domestic financial risk line to shareholders' funds, grew to 148% in 2016 from 69% in 2015. Fitch is cautious about the non-core nature of the domestic financial risks and the absence of local government guarantees for these risks. After several consecutive years of steady growth, the export credit portfolio has seen considerable contraction, with export credit exposure falling to BYN844 million in 2016 from BYN1.3 billion in 2015. The drop in the export insurance followed negative macroeconomic trends in the Belarusian economy in 2016, as exports declined by almost half over 2012-2016. Eximgarant has a track record of profitability in the last five years. Its pre-tax income slightly worsened to BYN28 million in 2016 from BYN33 million in 2015, underpinned by underwriting profit and investment returns. Foreign-currency gains of BYN14 million also made a positive contribution to net income, although less than 2015 's BYN25 million. Eximgarant's underwriting performance is underpinned by subrogation recoveries for export and domestic financial risks insurance. Subrogation income totalled to BYN9.1 billion in 2016, equivalent to19% of the insurer's improved combined ratio. However, with low recovery rates, unpredictable subrogation income has created significant distortion and volatility in Eximgarant's overall combined ratio. Eximgarant's investment portfolio reflects the credit quality of local investment instruments, which are constrained by sovereign risks and the presence of significant concentrations by issuer. However, Eximgarant's ability to improve diversification is limited by the narrow local investment market and strict regulation of insurers' investment policies. RATING SENSITIVITIES A change in Fitch's view of the financial condition of the Republic of Belarus or significant change in the insurer's relations with the government would likely have a direct impact on Eximgarant's ratings. Contact: Primary Analyst Anastasia Surudina Analyst +7 495 956 5570 Fitch Ratings CIS Limited Valovaya Street, 26 Moscow 115054 Secondary Analyst Sam Mageed Director +44 20 3530 1704 Committee Chairperson Dr Stephan Kalb Senior Director +49 69 768076 118 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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