Ratings of Credit Europe Life

The National Rating Agency Limited Liability Company (hereinafter referred to as the NRA, the Agency) has assigned a credit rating to Credit Europe Life Insurance Company LLC at the level of "BBB-|ru|" on the national rating scale for the Russian Federation, the rating outlook is "Stable".

JANUARY 15, 2024

JUSTIFICATION OF THE ASSIGNED RATING

The key positive factors of the rating assessment are:

• high asset credit quality ratio: as of September 30, 2023, it was 80%, which is higher than the average market values. The portfolio is based on fixed-income investments - deposits and bonds. The credit quality of investments in the portfolio as a whole is good. Assets with ratings below "A-" on the national rating scale and assets without ratings account for ~13% of investments. Investment risks in the company's activities are low.
• a high level of profitability of investment activities is characterized by positive dynamics year-on-year. As of September 30, 2023, this indicator was 7.21%;
• a sufficient level of liquidity of the Company's assets in terms of the length of the implementation period and possible losses when converting into cash (liquidity ratio) as of September 30, 2023 corresponds to average values ​​(65.5%);
• high reinsurance coverage indicators: the share of reinsurers with ratings at the AAA level on the national rating scale and comparable ratings on the international scale is 100%. Proportional reinsurance agreement with RNPK.
• transparent ownership structure: JSC Credit Europe Bank (Russia) is a 100% owner of the insurance company. Financial support for the company in 2022-23 was not provided due to the lack of need, however, the Company notes that if such a need arises, the bank will provide support.

The key restraining factors of the rating assessment are:

• low market position: the company ranks 80th among universal insurers in terms of gross premiums for the first 6 months of 2023. The Company's market position is below average;
• very high growth rate of net premiums (CAGR over 2 years): the rate of change in net premiums does not correspond to average market values, as of September 30, 2023, this figure was 42%;
• taking into account management expenses, the combined net loss ratio (average value over the past 3 years) is 106%, which does not correspond to average market values;
• the Company's business is poorly diversified by types of insurance. The Company specializes in voluntary health insurance (77% for 9 months of 2023) and accident insurance (22% for 9 months of 2023). Other types of insurance in the Company account for 1% as of 9 months of 2023.
• the ratio of equity capital to accepted liabilities as of September 30, 2023 is 1.25, which corresponds to the average level. The agency notes that a deterioration of this indicator to the level of June 30, 2023 and below may lead to a change in the rating.

KEY ASSUMPTIONS

Key assumptions of the NRA used in the rating analysis of the Company:

• stability of the situation on the Russian insurance market in the medium term;
• preservation of the Company's existing client base;
• absence of legislative changes that negatively affect the Company's activities.

FACTORS THAT MAY INFLUENCE THE RATING LEVEL OVER THE NEXT 12 MONTHS

Future events that may support the current rating level:

• stabilization of net premium growth (gross premium minus commission fees) with a positive net result for types of insurance activities;
• strengthening the position in the market;
• improving the diversification of the insurance portfolio;
• increasing the level of the ratio of equity capital to accepted liabilities;
• positive dynamics of liquidity indicators;/
• improving the quality of the risk management system, corporate governance.

Future events that may have a negative impact on the rating level:

• sharply negative dynamics of liquidity indicators, profitability, capital and liabilities ratio;
• subsequent growth of the combined net loss ratio;
• decrease in the credit quality of the investment portfolio;
• negative reputational events.

The base rating (assessment of own creditworthiness) is assigned at the level of "BB-|ru|". The methodology for taking into account external support when assigning credit ratings on the national rating scale for the Russian Federation was applied.

Forecast