AM Best has upgraded the Financial Strength Rating of AzRe Reinsurance, OJSC (AzRe) from B+ (Good) to B++ (Good) and the Long-Term Issuer Credit Rating from “bbb-” (Good) to “bbb” (Good). The outlook for both ratings remains stable.
Key Factors Behind the Upgrade
The upgraded ratings reflect AzRe’s:
- Very strong balance sheet strength, bolstered by improved investment diversification outside Azerbaijan.
- Consistent strong operating performance, supported by robust underwriting results and investment returns.
- Strategic business profile, with a leading position in Azerbaijan’s reinsurance market and expanding international presence.
Improved Balance Sheet Strength
AzRe’s risk-adjusted capitalisation remains comfortably above the threshold for the strongest assessment under AM Best’s Capital Adequacy Ratio (BCAR). A significant driver of the upgrade was the shift in AzRe’s investment portfolio, with 35% of its assets in foreign fixed income securities as of June 2024, compared to less than 10% at the end of 2023. This diversification reduces exposure to the Azerbaijani market.
A challenge noted is the limited catastrophe retrocession cover on its growing international portfolio, though this business is geographically diverse.
Strong Operating Performance
AzRe has demonstrated a solid track record of profitability. In 2023, the company reported:
- A combined ratio (net-net) of 63.6%, indicating strong underwriting results.
- A return-on-equity ratio of 24.4%, supported by high investment returns amid elevated interest rates in Azerbaijan.
AM Best expects AzRe’s operating performance to remain strong, driven by diverse product offerings and favourable market conditions. However, large-risk exposures could introduce some earnings volatility.
Expanding Business Profile
AzRe holds a leading position in Azerbaijan’s domestic reinsurance market but remains relatively small on the global stage. The company is actively expanding into international markets, aiming to leverage rising reinsurance premium rates. However, it faces intense competition from established players.
AM Best will monitor AzRe’s progress in international markets and its ability to enhance enterprise risk management (ERM) capabilities to support this expansion.
Additional Information
This press release relates to credit ratings published on AM Best’s website. For more information, including disclosures and the office responsible for these ratings, visit AM Best’s Recent Rating Activity page.
