Moody’s downgrades Azerbaijan Standard Insurance, negative outlook

Moody's Investors Service has downgraded to B2 from B1 the Insurer Financial Strength rating (IFSR) of the insurance company Standard Insurance, based in Baku, Azerbaijan. The outlook on the rating is negative primarily reflecting concerns over the economic and financial environment in Azerbaijan, and particularly the weakness of Bank Standard, which is Standard Insurance's sister company.
Bank Standard was downgraded to B3 from B1 on July 28 driven by the material deterioration in its risk profile. As Bank Standard represents the significant majority of the Standard Group, as well as a major source of distribution for Standard Insurance, Moody's views the weakening financial strength of the bank as impacting the other members of the group, including Standard Insurance.
On a standalone basis, Standard Insurance has a top tier position in the Azerbaijan insurance market, and remains profitable with a net profit of AZN 2.8 mln (US$ 3.5 mln) in 2008 and a capital level of AZN 15.3mln (US$ 19 mln).
Nevertheless, premium levels are expected to fall during 2009, as a significant amount of premium is sourced via the branch network of Bank Standard and relates to insurance policies on cars purchased using loans provided by Bank Standard. Moody's noted that Standard Insurance has made significant progress in diversifying its distribution away from Bank Standard, utilizing it's own agent network, although general economic conditions in Azerbaijan mean the environment remains depressed.
The profitability of individual business lines remains somewhat volatile, reflecting the challenging operating environment.
During 2008 and 2009, Standard Insurance improved the quality of its investment portfolio, placing a large proportion of its investments in bonds issued by the Government of Azerbaijan.
However, Moody's noted that despite the improvements in many areas of Standard Insurance's stand-alone credit profile, the rating is somewhat constrained by the current significant financial problems elsewhere in the Standard group.
The current outlook is negative, reflecting concerns over the continuing financial strength of the Standard group. The rating may face further negative rating pressure if the rating on Bank Standard is downgraded. Conversely, a stabilisation or improvement in the stand-alone characteristics of Standard Insurance, combined with an improvement in the financial situation of Bank Standard, could lead to positive rating pressure.
Based in Baku, Standard Insurance is one of the leading Azeri non-life insurance companies. In 2008, it reported Gross Premiums Written of AZN 13 mln (US$ 16.2 mln) and net income of AZN 2.9 mln (US$ 3.6 mln), compared to AZN 13.2 mln and AZN 3.1 mln in 2007.