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Rating Action:

Moody’s assigns a Ba3 IFSR to Export Insurance Agency of Armenia; stable outlook

19 January 2022


London , January 19, 2022 – Moody's Investors Service ("Moody's") has today assigned Ba3 foreign and local-currency insurance financial strength ratings (IFSRs) to Export Insurance Agency of Armenia ICJSC (EIA). The outlook is stable.

EIA's Ba3 IFSRs reflect (1) its b1 Baseline Credit Assessment (BCA), and (2) moderate probability of support from the government of Armenia (Ba3 stable), resulting in a notch uplift above the BCA.

The full list of the affected ratings can be found at the end of this press release.

RATINGS RATIONALE

EIA is currently the only export insurance company in Armenia. It was established by the government to promote Armenian export within the framework of the export-oriented industrial policy of the republic of Armenia.

EIA's b1 BCA benefits from its solid capital adequacy relative to net total exposure with 90% of insurance risk reinsured by Swiss Reinsurance Company Ltd (Swiss Re, Aa3 stable), as well as sound financial flexibility and low financial leverage. At the same time, these strengths are tempered by the company's modest size in global terms, low granularity of its insurance book and limited geographical diversification, investments in high-risk assets in Armenia and weak underwriting profitability.

EIA provides export and pre-export credit insurance against political and commercial risks. Its share in GPW of credit insurance sector in Armenia (including loan insurance and other financial losses insurance) amounted to around 50% as of Q3 2021.

The insurer's diversification is constrained by its limited geographical and products diversification with some sizeable single-name exposure. It has concentrations of export exposure in Russia (Baa3 stable), given the structure of Armenia's exports and long-standing relations with Russia.

EIA's asset-quality metrics reflect a high concentration of its investments in domestic assets, which mainly comprise current accounts and deposits with Armenia-based banks and investments in local bonds issued by the government of Armenia. The company's high-risk investments, mainly deposits with local banks, accounted for around 138% of its equity as of 31 December 2020.

The insurer has strong capital adequacy benefitting from the significant portion of insurance risk exposure reinsured by Swiss Re. The company's shareholders' equity as a proportion of total assets (equity-to-assets ratio) has been consistently high at above 60%. EIA's underwriting leverage is robust at 0.02x as of end 2020 compared with that of global peers, driven by a low level of insurance risk relative to its capital.

EIA's underwriting profitability is weak with its credit insurance combined ratio of 162% in 2020, albeit the trend is improving. Poor underwriting profitability reflects the company's still low scale of business operations and challenging operating environment in Armenia.

The assignment of new ratings to EIA also takes into account the effectiveness of its governance as part of Moody's assessment of environmental, social and governance (ESG) considerations. Moody's does not have any particular governance concerns for EIA.

GOVERNMENT SUPPORT

Moody's assigns a moderate probability of government support resulting in a one notch uplift above EIA's BCA. This is based on the current full ownership of EIA by the Government of Armenia (Ba3 stable) and its public policy role in promoting Armenian export within the framework of the Export-Oriented Industrial Policy of the Government of Armenia. In the future the government has indicated that it may seek investment from international investors, but the state will continue to hold a controlling stake of not less than 51%. EIA's Chair of the Board of Directors is Deputy Minister of Economy three out of seven board members are representatives from the Ministry of Economy. There is no track record of government support in terms of provided guarantees or capital increase.

STABLE OUTLOOK

The stable rating outlook on EIA's IFSR is in line with the stable outlook on Armenia's Ba3 sovereign rating. It also reflects Moody's expectation that EIA will maintain its current financial metrics within the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

EIA's IFRS is currently rated at the level of the government of Armenia, resulting in limited upward rating potential in the absence of a sovereign ratings upgrade.

Conversely, downward pressure would arise in case of the downgrade of the sovereign rating, lower support assumption, or weaker BCA of the company.

LIST OF AFFECTED RATINGS

Issuer: Export Insurance Agency of Armenia ICJSC

Assignments:

....Insurance Financial Strength Ratings, Assigned Ba3

….Baseline Credit Assessment, Assigned b1

Outlook Action:

....Outlook, Assigned Stable

PRINCIPAL METHODOLOGY

The methodologies used in these ratings were Trade Credit Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187570 , and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235 .

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maria Malyukova
AVP-Analyst
Financial Institutions Group

Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Simon James Robin Ainsworth
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
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