The negative outlook reflects Russian Re's deteriorating underwriting performance resulting from a combination of its high expense base relative to net premium volumes, higher than unexpected frequency of large losses in its core markets and the impact of softening pricing conditions, particularly in its domestic Russia portfolio. Major losses experienced on the property account as of September 2014, coupled with expense pressures associated with the anticipated contraction in business volumes for the year, are expected to sustain Russian Re's combined ratio above 100% for 2014 (2013: 112.5%, 2012:108.3%).
Additionally, although Russian Re's risk-adjusted capitalisation remains supportive of current ratings, it has been deteriorating for a number of years, owing to a combination of high growth and increasing asset risk. The company's investment portfolio is relatively concentrated, with property and land investments representing 49% of total investments at year-end 2013. A return to growth levels experienced between 2011 and 2013, along with further deterioration in technical results, is likely to compromise the adequacy of Russia Re's risk-adjusted capitalisation in the medium term.
A.M. Best considers Russian Re's competitive standing to be hindered by its small size (by international standards), with gross written premiums of RUB 660 million (approximately USD 20 million) in 2013. In addition to the company's plans to expand outside of Russia and the former Soviet Union countries, with Asia Pacific, the Middle East and North African markets remaining as key growth drivers, Russian Re is expected to target growth in selected domestic market segments. Despite the company having a track record of net profits, A.M Best believes that Russian Re will likely continue to face significant challenges in growing profitably both in its domestic and foreign markets as a result of increased competition. Read the full story A.M. Best Revises Outlook to Negative and Affirms Ratings of Russian Reinsurance Company JSC
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