S&P Revises Outlook on Russian Ingosstrakh to Positive; Affirms Ratings

June 20, 2005

Standard & Poor’s Ratings Services announced that it has revised its outlook on Russian Ingosstrakh Insurance Co. to positive from stable, following improved risk in its investment portfolio. S&P also affirmed its “BB” long-term counterparty credit and insurer financial strength ratings, as well as its “ruAA” Russia national scale rating on the insurer.

“The ratings on Ingosstrakh reflect the high industry risk and ongoing need for capital support,” said S&P. “These negative factors are offset by Ingosstrakh’s strong competitive advantages, particularly in commercial insurance in Russia; good operating performance; and improved quality of the investment portfolio. Ingosstrakh, an INGO group member, is the leading commercial underwriter in The Russian Federation (foreign currency BBB-/Stable/A-3; local currency BBB/Stable/A-3), with some diversity into life, reinsurance, and private lines.”

S&P estimates that Ingosstrakh’s share of the Russian insurance market is about 12 percent with total assets of Russian ruble (RuR)20.8 billion ($733.2 million) and gross premiums written of RuR23.5 billion ($828.4 million).

“The positive outlook reflects the improved quality of Ingosstrakh’s investment portfolio to marginal from weak, in terms of risk and diversity, despite the limited choice of good-quality equity and fixed-income investments in Russia,” noted S&P credit analyst Tatiana Grineva.

S&P stressed that “investment risk is key in determining ratings on Russian insurers. In the medium term, Ingosstrakh still faces challenges to maintain its capitalization in line with its growth levels, although, historically, the group’s shareholders have demonstrated their commitment through a series of capital increases, the latest one of which totaled RuR500 million ($14.2 million) in May 2005.”

“The ratings could be raised if Ingosstrakh maintains its leading position in commercial insurance while diversifying into private lines in Russia, and into commercial and private lines in CIS through INGO subsidiaries; and successfully integrates INGO subsidiaries into a common platform,” Grineva added.

“Additional triggers of a higher rating include Ingosstrakh’s ability to sustain its good operating performance in the next two to three years, with an overall net combined ratio of 90 percent and acceptable ROE; and to maintain its capitalization within the ‘BBB’ range, according to Standard & Poor’s risk-based capital model,” the report concluded.

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