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Fitch downgrades Bulgaria's Euroins Insurance Group to B+, outlook negative

Fitch downgrades Bulgaria's Euroins Insurance Group to B+, outlook negative Source: Euroins

SOFIA (Bulgaria), July 1 (SeeNews) - Fitch said it has downgraded to B+ from BB- the insurer financial strength (IFS) ratings of the Bulgarian and Romanian non-life insurers of Euroins Insurance Group's (EIG), part of Eurohold Bulgaria [BUL:EUBG], and removed the companies from Rating Watch Negative (RWN).

The outlook is negative for Insurance Company Euroins, Insurance Company EIG Re and Euroins Romania Asigurare-Reasigurare, Fitch said in a statement earlier this week.

The reason for the downgrade is a significant fall in EIG's capital position following the restatement of its 2020 results.

At the same time, EIG reported all-time high results for 2021, doubling its gross written premium volume to 1.37 billion levs ($733.1 million/700.5 million euro), on the back of double-digit growth rates posted by EIG’s units across main markets.

Last week, Fitch maintained Eurohold Bulgaria's Long-Term Issuer Default Rating (IDR) at B and removed it from Rating Watch Negative (RWN) after affirming a stable outlook.

Fitch also said in the statement:

"The negative outlook reflects uncertainty over reserves adequacy and experience, and potential negative impact further restatements by EIG could have on the capital position of the company.

The removal of RWN follows the rating action taken on EIG's majority owner Eurohold Bulgaria.

The three insurers 'B+' IFS Ratings reflect EIG's 'Somewhat Weak' capitalisation and 'Weak' reserve adequacy.

KEY RATING DRIVERS

In its 2021 annual accounts, EIG restated the accounted IBNR (incurred but not reported) claims reserves for 2020, notably on its Romanian motor business. This implied a much lower capital position at end-2020 than formerly accounted. These restatements have significantly weakened EIG's capital position: our Prism Factor-Based (Prim FBM) capital model score was below the 'Somewhat Weak' category, based on preliminary evaluations, at end-2020, versus the former assessment of 'Adequate'.

The Prism FBM score remained below the 'Somewhat Weak' category at end-2021, also based on a preliminary assessment, albeit materially improved within the category from the restated result for end-2020, largely due to a capital injection from the European Bank for Reconstruction and Development (EBRD, EUR30 million) and Eurohold (EUR12 million) in September 2021.

Fitch views reserving as weak, reflecting historical reserve deficiencies and more recent restatements. Despite the significant increase in the restated claims reserves, we believe that a longer-term record of less adverse reserve development is key to demonstrating the sufficiency of accounted claims reserves.

ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:
- Prism FBM improving to the 'Somewhat Weak' category combined with a stabilisation of reserve experience

Factors that could, individually or collectively, lead to negative rating action/downgrade:
- Further deterioration in EIG's capitalisation, driven by, for instance, further restatements
- A downgrade of Eurohold's IDR."

(1 euro = 1.95583 levs)

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