Fitch Ratings is maintaining Insurance Group MSK’s (IG MSK) Insurer Financial Strength (IFS) rating of ‘BB’ and National IFS rating of ‘AA-(rus)’ on Rating Watch Negative (RWN).
The rating action follows the sale of 25% plus one share of Metropolitan Insurance Group (MIG), a vehicle holding 94.5% of IG MSK, to JSC Bank VTB (VTB; ‘BBB’/Stable) by the City of Moscow (‘BBB’/Positive). This transaction formed part of a larger deal when VTB acquired a 46.48% stake in Bank of Moscow (‘BBB-‘/RWN) from the City of Moscow at the end of February.
The RWN takes into account the uncertainty relating to IG MSK’s strategic importance to the new shareholder, VTB. Although VTB’s share is currently a minority one, it may grow organically if VTB obtains its targeted control over Bank of Moscow, indirect shareholder of IG MSK. The RWN also continues to reflect Fitch’s view that the scheduled merger of IG MSK and CJSC Spasskie Vorota may increase IG MSK’s dependence on its shareholders capital support due to the weaker financial profile of Spasskie Vorota.
If VTB gains control over IG MSK, as a supplement to the targeted control over Bank of Moscow, resolution of the RWN on IG MSK will depend on VTB’s strategic decision on the further management of IG MSK. If VTB remains a minority shareholder of IG MSK, resolution of the RWN will continue to depend on Fitch’s assessment of the relative weakening of IG MSK’s financial profile upon merger and on any rating actions on Bank of Moscow.
Fitch notes that VTB already has a 100%-owned insurance subsidiary, LLC IC VTB Insurance (‘BB’/Positive), a medium-sized non-life company with a focus on the parent bancassurance channel. IG MSK is a large non-life insurer. It also writes part of the premiums through parent Bank of Moscow, but its strategy is different from that of VTB Insurance and has been increasingly focused on the independent growth in the retail segment through non-affiliated distribution channels. Realisation of this strategy was supported by the mergers of IG MSK with MSK-Standard in Q110 and Spasskie Vorota, scheduled for Q111.
Fitch also notes that IG MSK’s underwriting performance was weaker than VTB Insurance’s in 2009-2010 due to the differences in the business mix, level of exposure to the challenges of the local operating environment during the crisis and the idiosyncratic risks of IG MSK, realised at the merger with MSK-Standard. As there are both strengths and weaknesses in IG MSK’s operational profile compared with VTB Insurance, there is rationale for various strategic decisions, which could be made by VTB in relation to IG MSK.
IG MSK had gross assets of RUB31bn at end-9M10 and gross written premiums (GWP) of RUB8bn in 9M10. Spasskie Vorota had gross assets of RUB12.4bn at end-9M10 and GWP of RUB6.5bn in 9M10. VTB Insurance had gross assets of RUB4.2bn at end-9M10 and GWP of RUB4.1bn in 9M10.
Source : Fitch Ratings Press Release
