Fitch says Euroins Romania troubles have "limited impact" on Euroins group

International rating agency Fitch has downgraded the Insurer Financial Strength Rating (IFS) of Euroins Romania to CC from B+ and placed it on Rating Watch Evolving (RWE).

But it only placed the IFS ratings of the other entities in the Bulgarian insurance group Euroins (EIG), as well as the EIG as a whole, on Rating Watch Negative (RWN). And this is because it revised the strategic importance of Euroins Romania to EIG down to 'Limited Importance' from 'Core'. Euroins Romania is thus no longer highly important for EIG, but this is not clear when and why this happened.

Furthermore, Fitch stresses that the reinsurance contract among Euroins subsidiaries, not recognized by Romanian authorities and reportedly of key importance for the fate of Euroins Romania, is not compromised since the decision is contested by EIG.

Fitch also mentions the much-expected results of the actuarial investigations carried out by EIG minority shareholder EBRD and EIOPA about the validity of the reinsurance contract. The report is expected in end-March.

"We expect the overall impact on EIG's credit profile to be limited, although heightened reputational risk might result in further credit weakness," the rating agency says.

However, it admits that "Euroins Romania contributes the majority share of premiums to the consolidated insurance group's premium income" and "as such, EIG's consolidated business profile will deteriorate from the suspension of new business at Euroins Romania."

The limited direct impact of the troubles faced by the group in Romania is explained by Fitch as reflecting "the weak reserve adequacy and capitalization of Euroins Romania," which "constrained EIG's credit profile."

In November, Fitch revised from negative to stable the outlook on the IFS of EIGand its subsidiaries to reflect "the stabilization in reserve development and the expectation of improvement in the Prism Factor-based Model (Prism FBM) Score."

Fitch was reporting at that time "weak reserve adequacy and capitalization" but nothing of the size announced by Romanian authorities that, according to Fitch, "have materially raised the probability that Euroins Romania could default on its obligation."