A.M. Best Affirms Credit Ratings of PASHA Insurance OJSC

A.M. Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” of PASHA Insurance OJSC (PASHA Insurance) (Azerbaijan). The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect PASHA’s balance sheet strength, which A.M. Best categorises as very strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management.

A.M. Best expects PASHA Insurance’s balance sheet strength to be maintained at a very strong level, supported by its relatively large capital base and the good quality of its reinsurance protection. Factors that negatively affect balance sheet strength include the company’s high dividend payout ratio and its elevated investment risk profile, given the high financial system risk in Azerbaijan. PASHA Insurance is taking steps to reduce its investment risk by revisiting its investment guidelines and investing a small proportion of assets in high-quality foreign debt securities.

Operating performance is strong, as demonstrated by a five-year weighted average combined ratio of 86.5% and a return on capital and surplus of 18.8% (2012–2016). Over this period, the company’s performance benefited from the relatively low level of loss activity in Azerbaijan compared with more mature insurance markets, as well as the country’s high interest rate environment. According to non-audited financial statements, the company generated a strong net profit of AZN 15.8 million (approximately USD 8.9 million) in 2017.

However, prospective performance may be subject to volatility due to the challenging market conditions in Azerbaijan and the company’s plans to expand into market segments where it has limited expertise.

PASHA Insurance maintains a solid business profile in Azerbaijan’s small and underdeveloped insurance market, supported by its affiliation with the PASHA group and its established business relationships with large commercial customers. In 2017, the company was ranked as the country’s largest non-life insurer based on gross written premium (GWP). PASHA Insurance’s underwriting portfolio has grown substantially in recent years, demonstrated by a five-year compound annual GWP growth rate of 48% (2012–2016). In 2017, the company’s GWP increased by an additional 9% to AZN 106 million (approximately USD 60 million), due to growth within lines outside its core corporate medical insurance book, such as motor, property, energy and agriculture.

A.M. Best notes material concentration risk in PASHA Insurance’s underwriting portfolio, although the company has taken steps to improve product diversification. In 2017, the company’s medical insurance business, which is primarily derived from a single group client, accounted for around 45% of its total GWP (2016: 52%). Whilst PASHA Insurance is expected to continue to focus on corporate business, it also plans to develop its retail book and new lines of business such as agriculture, and further leverage opportunities with other PASHA group companies.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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