Fitch: VSK's solvency under threat from the Urban Group

The insurer will need to create 9.7 billion rubles of reserves, Fitch believes.
Fitch placed on the review of the ratings of the insurance company VSK, including a rating of financial stability, with the possibility of lowering, the agency said.

Fitch notes that since July 10, the Central Bank has set a new reserve requirement for the insurers of developers. As a result, VSK needs to create a reserve of 9.7 billion rubles. according to Urban Group liability insurance policies. As of July 9, when the Arbitration Court of the Moscow Region has recognized a number of developer companies bankrupt, the requirement to create a reserve in this amount creates a significant deficit in terms of insurance coverage and solvency of VSK, Fitch believes.

VSK does not see any risks of non-compliance with regulatory requirements, its representative told Vedomosti.

 VSK insured the responsibility of the Urban Group, confirmed the representative of the insurer. The amount of liabilities to its equity holders, he does not disclose, assuring that the company will fulfill them. The source of Interfax estimated the aggregate amount of VSK's liabilities to equity holders to almost 10 billion rubles: "If this amount is presented for payment, the insurance company may have problems with financial stability."

VSK believes that the recognition of some Urban Group companies as bankrupt will not affect the company's financial performance. Most of the insured objects have already been put into operation or are in a high degree of readiness, VSK does not expect a large number of applications for cash compensation of equity holders who did not receive housing due to the developer's failure to fulfill its obligations, quoted the representative of VSK Interfax.

In addition, the company's risks for Urban Group's problem facilities are reinsured in the Swiss Re, RNPK and a number of other companies, a representative of the VSK said. What part of responsibility is reinsured, he does not name.

Shareholders VSK (51% - from Sergei Tsikalyuk, 49% - from "Safmar financial investments" Mikhail Gutseriev) told Fitch about the willingness to provide a subordinated loan to the insurance company to cover the potential deficit of assets and capital, the agency said. A representative of VSC confirmed to Vedomosti that, if necessary, shareholders are ready to provide the company with a subordinated loan in excess of the regulator's requirements. "The company does not expect a significant impact on the financial results of 2018. The profit of VSK under IFRS is forecasted at least 6.7 billion rubles," he added.

At the end of May, the largest construction company in the Moscow region, the Urban Group, announced the suspension of housing sales in connection with the company's audit. The construction of houses has also been stopped. Urban Group has obligations to more than 20 000 equity holders.