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Moody's Rates Insurance Company Universalna (Ukraine) B3

First-time Insurance Financial Strength Rating; Stable Outlook

London, 14 February 2008 – Moody's Investors Service has today announced that it assigned a first-time global scale insurance financial strength rating (IFSR) of B3 to Insurance Company Universalna, based in Kiev, Ukraine. The rating outlook is stable.

The company is 60% owned by Financial and Investment Energy Holding, whose main asset is OJSC Concern Galnaftogaz, an oil distribution company. Universalna is a Top 10 player in the Ukrainian insurance market, with a good position in the motor market. Motor premiums accounted for 57% of the company's gross premiums written in 2006. Universalna's credit strengths include one of the largest agent networks in Ukraine, a diversified distribution strategy and a relatively high degree of financial flexibility owing to its status as Ukraine's only publicly-traded insurer.

However, Moody's notes that these strengths are offset by poor technical profitability resulting from a high expense ratio and a challenging operating environment, substantial asset risk with high exposures to equities and real estate (18% and 51% of the investment portfolio at year-end 2006, respectively), as well as rapid growth by acquisition, both in Ukraine and, more recently, internationally. Moody's also notes that despite recent capital increases, the indebtedness of the company is relatively high following the issuance of bonds
totalling UAH30 million (EUR4.5 million) at the end of 2006.

Timour Boudkeev, Vice President – Senior Credit Officer and lead analyst for Universalna at Moody's, said: «Universalna has been growing at a rapid pace in recent years, partly by acting as consolidator of regional insurers, and succeeded in building an extensive agent network in Ukraine. However, the company has a high cost base, is facing increased pressure on profitability in some of its core lines of business and has yet to successfully integrate many of its recent acquisitions. In addition, the Ukrainian market is becoming increasingly competitive following entry by sophisticated international players in the last couple of years».

Commenting on what could result in upward pressure on Universalna's insurance financial strength rating, Moody's mentioned sustainable growth in the franchise, e.g. becoming a Top 5 retail insurer in Ukraine, a lower business risk profile with increased diversification and less reliance on the motor liability business, a track record of profitability, enabling the company to finance its growth internally, a decrease of high risk and illiquid assets in the investment portfolio as well as improved capitalisation and lower financial leverage.

Conversely, negative rating pressure could develop in the event of erosion of the company's current market position, deterioration of operating profitability, lower levels of capitalisation and failure to integrate recent acquisitions.

The following first-time rating was assigned:
Insurance Company Universalna – insurance financial strength rating at B3, stable outlook.

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