A.M. Best has assigned a financial strength rating of B+ (Good) and an issuer credit rating of "bbb-" to Transneft Insurance Company, JSC.
The ratings reflect Transneft's supportive level of risk-adjusted capitalisation and the strong operating performance of business derived from its former parent, OAO AK Transneft, the largest oil transporter in Russia.
The ratings also consider Transneft's acquisition by SOGAZ Insurance Company OJSC (Sogaz) during the fourth quarter of 2013.
In December 2013, Sogaz completed its purchase of a 98.91 percent share in Transneft.
The remaining shares are held by OAO AK Transneft. Under the ownership of Sogaz, Transneft will operate as a separate subsidiary until at least 2016. Thereafter, Transneft's operations are expected to be fully consolidated into the Sogaz group. Although uncertainty remains regarding the legal entity in which Transneft's outstanding liabilities will remain after 2016, Sogaz is expected to support Transneft's policyholders' obligations.
Transneft maintains a limited business profile as the former captive insurer of OAO AK Transneft, with this business expected to account for approximately 65 percent of gross written premium in 2013. Over the next two years, Transneft will continue to underwrite captive risks derived from its former parent and develop its open-market portfolio, comprising a range of retail and commercial product offerings targeted at the employees and business associates of OAO AK Transneft.
Transneft's risk-adjusted capitalisation is maintained at a strong level, reflective of its low net underwriting leverage. The company's balance sheet strength is enhanced by the high credit quality of its reinsurance panel and a conservative investment portfolio of cash and cash equivalents.
Transneft has exposure to a small number of domestic banks, with the top four holding 70 percent of the company's investments. However, this risk is partly alleviated by the secure credit profile of these institutions.
Transneft has a proven track record of generating strong operating results, as demonstrated by a five-year average return on net earned premiums of 26 percent. Overall earnings are reliant on the performance of captive business, which contributed the majority of the RUR 1.7 billion pre-tax profits reported in 2012, based on international financial reporting standards.
Positive rating actions are unlikely at this time.
