November 15 (SeeNews) - Fitch said it has affirmed at B+ (Weak) the insurer financial strength (IFS) ratings of the Bulgarian and Romanian non-life insurers of Euroins Insurance Group (EIG), part of Eurohold Bulgaria [BUL:EUBG], and has revised their outlook to stable from negative.
The ratings apply to Insurance Company Euroins and Insurance Company EIG Re in Bulgaria, and to Euroins Romania Asigurare-Reasigurare, Fitch said in a statement on Monday.
The ratings were affirmed at that level due to the weak reserve adequacy and capitalisation of the companies.
"The revision of the outlook reflects the stabilisation in reserve development and the expectation of improvement in the Prism Factor-based Model (Prism FBM) Score," Fitch noted.
In July, the ratings agency downgraded all three companies from the group to B+ from BB- due to a decline in EIG's capital position following the restatement of its 2020 results. The agency also removed the three companies from Rating Watch Negative (RWN) at the time.
Last year, EIG reported all-time high annual results, doubling its gross written premium volume to 1.37 billion levs ($728.8 million/700.5 million euro).
Fitch also said in Monday's statement:
"KEY RATING DRIVERS
Improving Reserving Trend: Bulgarian non-life insurance group EIG's reserve adequacy improved during 1H22. We expect reserve adequacy to improve further by end-2022. However, a longer record of lower reserve deficiencies is needed to demonstrate the robustness of insurance reserves. Deficiencies in 2020 and 2021 were driven by competitive rates in Romanian motor business and the weaknesses of the Romanian market in calculating adequate reserves. Rates have more than doubled since January 2021, accelerating after the former market leader exited the market.
Weak Reserve Adequacy: EIG reported adverse claims reserve development, primarily for Euroins Romania Asigurare-Reasigurare S.A. in 2020 and 2021. With its 2021 consolidated accounts, EIG reported restatements for its insurance reserves at end-2020. Restated net reserves were BGN493 million (gross BGN1,206 million), up from originally accounted reserves of BGN314 million (gross BGN837 million).
Weak Albeit Improving Capitalisation: We expect the Prism FBM Score to be at least 'Somewhat Weak' at end-2022. Our assessment of capitalisation is constrained by the uncertainties around reserve adequacy, albeit we view positively EIG's group Solvency II ratio of 137 % at end-2021. The Prism FBM score was 'Somewhat Weak' at end-2021 (end-2020: 'Weak', after restatements). Our view takes into account the auditor's qualified opinion about insurance reserves. Stable reserve development would be key for an improved view of capital while further restatements of insurance reserves would likely result in the Prism FBM score falling below the 'Somewhat Weak' category.
Further to the restatements, shareholder funds were revised to BGN216 million, down by BGN188 million from BGN404 million at end-2020, primarily reflecting the restated insurance reserves. In 2021, the European Bank for Reconstruction and Development (EBRD, EUR30 million) and EIG's owner Eurohold Bulgaria AD (Eurohold, Issuer Default Rating B/Stable, EUR12 million) injected EUR42 million capital into EIG, which supports EIG's capitalisation.
Volatile Financial Performance: We expect EIG to report net income for 2022. EIG reported a strong recovery for its net income in 2021, improving to BGN78 million from a loss of BGN55 million in 2020. Due to the elevated volatility, we regard EIG's financial performance as somewhat weak.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- Continued stabilisation of reserve experience while the Prism FBM score is at least at the upper end of the 'Somewhat Weak' category
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- Prism FBM Score falling below the 'Somewhat Weak' category
- High losses from reserve development or similar restatements of insurance reserves
- A downgrade of Eurohold's IDR."