The ratings of SOGAZ reflect its solid consolidated risk-adjusted capitalisation, strong operating performance and robust competitive position as a commercial lines insurer. Partly offsetting these positive rating factors is SOGAZ's exposure to the weak economic conditions in its domestic market.
SOGAZ's consolidated risk-adjusted capitalisation remains at a solid level, underpinned by its large capital base and strong internal capital generation. This is despite the group's relatively high dividend policy, which coupled with significant premium growth and a rise in reserve provisions, resulted in some weakening in its capital adequacy, as measured by Best's Capital Adequacy Ratio, in 2014. Nonetheless, an anticipated slowdown in the growth of SOGAZ's premium volume in 2015, owing to reduced insurance demand as a result of Russia's economic slowdown, is expected to partially strengthen the level of capital buffers inherent within SOGAZ's consolidated risk-adjusted capitalisation.
The group's operating results have historically been solid, as demonstrated by a five-year average return on capital and surplus of 23.6% and a combined ratio of 92.7%. During the first quarter of 2015, SOGAZ was exposed to a number of large industry losses, which mainly arose from its property accounts, continuing the trend experienced in the previous year. Nevertheless, the negative impact of these losses was minimised by the group's effective reinsurance protection. A.M. Best expects SOGAZ's performance to remain positive, although tempered by a higher expense ratio, as the group further develops its regional and retail business, and the anticipated slowdown in premium volume.
The negative outlook on SOGAZ's ratings continues to reflect the group's exposure to the fragile macroeconomic conditions in Russia. Although the group has taken steps to strengthen its resilience against these challenges, for example, by restructuring its fixed-income portfolio toward higher-rated investments, divesting some of its equity portfolio and increasing the share of short-term deposit holdings, uncertainty remains with the impact of the prolonged weakening of Russia's macroeconomic situation on SOGAZ's balance sheet strength. Read the full story RUSSIA: A.M. Best Affirms Ratings of SOGAZ