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AM Best Affirms Credit Ratings of AzRe Reinsurance, OJSC
[December 13, 2018]

AM Best Affirms Credit Ratings of AzRe Reinsurance, OJSC

AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of "bbb-" of AzRe Reinsurance, OJSC (AzRe) (Azerbaijan). The outlook of these Credit Ratings (ratings) remains stable.

The ratings reflect AzRe's balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, limited business profile and marginal enterprise risk management.

AzRe's balance sheet strength is underpinned by consolidated risk-adjusted capitalisation that is at the strongest level, as measured by Best's Capital Adequacy Ratio (BCAR), as well as good quality retrocession and a conservative investment portfolio by asset type. An offsetting factor is the company's exposure to the high financial system risk in Azerbaijan, resulting in its investments having a non-investment grade credit quality. During 2018, AzRe is expected to further substitute cash and deposits held with local banks with government bonds, which are considered more secure by the group, with a small proportion of the portfolio invested in U.S. T-bills.

AzRe has achieved strong operating results in recent years, as demonstrated by a five-year weighted average combined ratio 56.4% and a return on capital and surplus of 21.0% (2013-2017). Performance benefits from relatively low loss ratios in Azerbaijan when compared with more mature insurance markets, and from high investment yields reflective of the country's high interest rate environment. Prospective performance may be subject to volatility due to AzRe's potential exposure to large losses and the evolving operating environment in Azerbaijan.

AzRe is one of the leading players in the local (re)insurance marke where it benefits from its profile as Azerbaijan's only specialised reinsurer. Negatively affecting AM Best's assessment of the company's business profile is its highly concentrated portfolio, by geography and line of business, with a significant share of gross written premium derived from personal accident business, as well as its small size by international standards. AzRe has taken steps to increase its portfolio diversification by developing direct life and non-life insurance through subsidiaries and by expanding in foreign markets, mainly in the Middle East and former Soviet countries. AM Best believes that profitable expansion will be challenging, given the difficult operating conditions in Azerbaijan and intense competition in the global reinsurance segment.

This press release relates to Credit Ratings that have been published on AM 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 AM 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 AM Best press releases, please view Guide for Media - Proper Use of Best's Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit for more information.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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