S&P raised the rating of Belarus Re

Standard & Poor's Ratings Services revised its outlook on Belarusian National Reinsurance Organization (Belarus Re) to stable from negative.

At the same time, the 'B-' long-term counterparty credit and insurer financial strength ratings were affirmed.

The outlook revision follows the similar rating action on the Republic of Belarus (B-/Stable/C; see "Outlook On Belarus Revised To Stable On Improving Economy And Liquidity; Ratings Affirmed At 'B-/C'", published April 18, 2012, on RatingsDirect on the Global Credit Portal).

We revised our outlook on Belarus Re to reflect our view that there are signs of stabilization in the Belarusian economy due to the liberalization of the exchange rate, decline in inflation, and return of deposits to the banking system.

The ratings on Belarus Re continue to reflect industry and country risk and the weak credit quality of its investment portfolio. These risks are offset by adequate capitalization, competitive advantages from its monopoly position in Belarus' reinsurance market, significant regulatory authority stipulated by legislation, and marginal operating results.

The ratings on Belarus Re reflect its stand-alone credit profile only. In accordance with our criteria for government-related entities (GREs), we assess the likelihood of timely and sufficient extraordinary government support to Belarus Re as "high". This includes our view that Belarus Re plays an "important" role in the Belarusian economy, holding a monopoly position in Belarus' insurance market as the sole provider of reinsurance protection. We also consider Belarus Re's link with the Belarusian government as "very strong" because the government owns 100% of Belarus Re via the Belarusian Ministry of Finance. However, we don't add any notches of uplift for the possibility of extraordinary support from the government in times of distress, because the long-term local currency sovereign credit rating is no higher than Belarus Re's stand-alone credit profile.

The ratings on Belarus Re are constrained by the sovereign credit ratings on its country of domicile, in line with our insurer country risk criteria (see "Criteria Update: Factoring Country Risk Into Insurer Financial Strength Ratings", published Feb. 11, 2003). Our criteria use the long-term local currency sovereign credit rating as a proxy for country risk. The local currency sovereign credit rating on Belarus limits the ratings on Belarus Re because the company's assets include material amounts of domestic sovereign and bank debt, and it has a largely domestic customer base.

The stable outlook mirrors the outlook on Belarus.

We do not envisage negative rating actions on Belarus Re, given its current capitalization level and better underwriting results than its regional peers. However, a negative rating action on Belarus could trigger a similar rating action on Belarus Re.

We view a positive rating action as unlikely within the next 12 months. However, we could raise the ratings on Belarus Re if we were to raise the long-term local currency rating on Belarus.

We do not expect Belarus Re's GRE status to result in any notches of support over the next 12 months, due to the low sovereign rating.