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Negative Rating Actions Taken On Russian Insurers On Heightened Geopolitical And Economic Risks

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Negative Rating Actions Taken On Russian Insurers On Heightened Geopolitical And Economic Risks

NEW YORK (S&P Global Ratings) Feb. 28, 2022--S&P Global Ratings today said that it has taken negative rating actions on its rated Russian insurers. The rating actions reflect our view of increased geopolitical and economic risks in Russia and follow the downgrade and negative CreditWatch placement of the Russian sovereign on Feb. 26, 2022.

The rating actions include the following:

  • We lowered the ratings on Sogaz Insurance and Ingosstrakh Insurance Co. to 'BBB-' from 'BBB' and placed the ratings on CreditWatch negative to reflect the lowering of the local currency sovereign credit rating on Russia, as well as the negative CreditWatch placement.
  • We lowered the ratings on Sberbank Insurance LLC to 'BB+' from 'BBB-' and placed them on CreditWatch negative to reflect the combination of the lowering of the local currency sovereign credit rating on Russia, the negative CreditWatch placement, and the pressure on Sberbank group's creditworthiness.
  • We placed the ratings on VSK Insurance JSC, Energogarant PJSIC, Lexgarant Insurance Co. Ltd., Alfastrakhovanie OAO, Insurance Co. RESO-GARANTIA, and its nonoperating holding company (NOHC), Stanpeak Ltd., on CreditWatch negative.

We consider that the escalation of Russia-Ukraine tensions, the military operations in Ukraine, and the widening of sanctions against Russia could lead to conditions that eventually destabilize Russia's economy and financial system.

The U.S. and EU have announced a new slate of sanctions that further limit Russia's access to the global economy and financial markets and subsequently harm its financial sector. We believe that these sanctions would likely constrain Russia's long-term growth prospects and potentially make the country less attractive to investors in the medium-to-long term.

So far this year, the value of the Russian stock market has dropped by more than 40% and bond prices have fallen by more than 15% since the beginning of 2022. We consider that the impact of recent sanctions and possible additional ones could further intensify the volatility in the domestic market and local currency, which in turn could erode insurers' profitability and capital positions.

Russian insurers cumulatively hold about 52% of their balances in securities (94% of which is fixed income). Therefore, these issues represent a significant risk for insurers' capital positions, driven by the negative revaluation of their securities portfolios. Like banks, Russian insurers are now permitted to recognize in their regulatory capital calculations a revaluation of securities based on quotes as of Feb. 18, 2022--right before the massive index drop. Given this relief, we do not see immediate pressure on Russian insurers' regulatory ratios, though the fair value of their portfolios has suffered significantly.

Overall, Russian insurers have a long position in foreign currency, therefore the sector will generally benefit from the ruble devaluation against the U.S. dollar observed in 2022 (in 2021, the sector recorded losses due to ruble appreciation). We believe that Russian insurers might experience the long-term effects of foreign currency appreciation on their loss ratios with a lag, so we don't expect immediate pressure on their technical results.

With financial leverage for the sector below 4%, Russian insurers have very limited debt and do not depend on any financing raised abroad. That said, they depend on reinsurance protection purchased abroad (mainly in the U.K., Germany, Switzerland, France, and the U.S.). The reinsurance utilization ratio fluctuates around 15% for property/casualty (P/C) insurers.

CreditWatch

The CreditWatch placements reflect our opinion that increased geopolitical and economic risks in Russia will weigh on insurers' creditworthiness. The negative implications of the CreditWatch indicate the likelihood of additional negative rating actions on all Russian insurers within the next 90 days.

We aim to resolve the CreditWatch once we have obtained sufficient information on the risks involved, whether they will materialize, as well as their likely impact.

Related Criteria

Related Research

Ratings List

Ratings Affirmed; CreditWatch Action
To From

AlfaStrakhovanie PLC

Financial Strength Rating
Local Currency BBB-/Watch Neg/-- BBB-/Stable/--
Ratings Affirmed; CreditWatch Action
To From

Energogarant PJSIC

Issuer Credit Rating
Local Currency BB/Watch Neg/-- BB/Stable/--
Financial Strength Rating
Local Currency BB/Watch Neg/-- BB/Stable/--
Downgraded; CreditWatch Action
To From

Sogaz Insurance

Issuer Credit Rating
Local Currency BBB-/Watch Neg/-- BBB/Stable/--
Financial Strength Rating
Local Currency BBB-/Watch Neg/-- BBB/Stable/--
Downgraded; CreditWatch Action
To From

Ingosstrakh Insurance Co.

Issuer Credit Rating
Local Currency BBB-/Watch Neg/-- BBB/Stable/--
Financial Strength Rating
Local Currency BBB-/Watch Neg/-- BBB/Stable/--
Ratings Affirmed; CreditWatch Action
To From

Lexgarant Insurance Co. Ltd.

Issuer Credit Rating
Local Currency BB-/Watch Neg/-- BB-/Stable/--
Financial Strength Rating
Local Currency BB-/Watch Neg/-- BB-/Stable/--
Ratings Affirmed; CreditWatch Action
To From

VSK Insurance JSC

Financial Strength Rating
Local Currency BB/Watch Neg/-- BB/Stable/--
Downgraded; CreditWatch Action
To From

Sberbank Insurance LLC

Financial Strength Rating
Local Currency BB+/Watch Neg/-- BBB-/Stable/--
Ratings Affirmed; CreditWatch Action
To From

Reso-Garantia Insurance Co.

Issuer Credit Rating
Local Currency BBB-/Watch Neg/-- BBB-/Positive/--
Financial Strength Rating
Local Currency BBB-/Watch Neg/-- BBB-/Positive/--

Stanpeak Ltd. LLC

Issuer Credit Rating BB/Watch Neg/-- BB/Positive/--

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; or Stockholm (46) 8-440-5914

Additional Contact:Insurance Ratings EMEA;
Insurance_Mailbox_EMEA@spglobal.com

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