Methodology: transparency and reliability

Methodology for determining credit ratings for insurance companies (insurers)

CIRA determines the credit rating for banking sector entities using the three main components that make up the aggregated rating of a bank. These components include:comprehensive credit and fundamental analysisthat combines quantitative metrics, business model assessment, risk management qualities and forward-lookingscenario modeling. This approach gives a more accurate picture of the insurer's sustainability than models relying only on historical coefficients or fixed discriminatory dependencies. A rating conclusion is formed as Aggregated assessmentfrom the key components, taking into account the relationship of factors and possible stress scenarios (for life, non-life and composite insurers).

‍Key components of the methodology:

SR/IFSR (Insurer Financial Strength Rating) - assessment of the bank's ability to fulfill obligations based solely on its internal financial condition and ability to meet its debt obligations at the expense of internal sources.

SSR (Shareholder Support Rating) - assessment of the level of potential financial support of the bank's shareholders, which can be provided to it (in the form of financial assistance, strategic management or other resources).

GSR (Government Support Rating) - assessment of the level of probability of support of the bank by the government in the event of a threat of default.

IDR (Issuer Default Rating) - if necessary, the rating of the probability of default of the issuer/insurer on financial obligations is determined.

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Methodology for determining credit ratings for banking sector entities

CIRA determines the credit rating for banking sector entities using the three main components that make up the aggregated rating of a bank. These components include:

Solidity Rating (SR) - assessment of the bank's ability to fulfill obligations based solely on its internal financial condition and ability to meet its debt obligations at the expense of internal sources.

Shareholder Support Rating (SSR) - assessment of the level of potential financial support of the bank's shareholders, which can be provided to it (in the form of financial assistance, strategic management or other resources).

Government Support Rating (GSR) - assessment of the level of probability of support of the bank by the government in the event of a threat of default.

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Methodology for determining credit ratings for covered bonds

The credit rating of covered bonds is determined probability of default and expected losses of investors (Expected Loss)taking into account the terms of the issue, the collateral structure and the legal mechanism for debt repayment. For covered bonds, the key is the principle Dual recourse— the right to claim both to the issuer and to the cover pool. Evaluation is based on a combination structural analysis of the transaction, cash-flow/scenario modeling, as well as coverage, liquidity and counterparty risk assessments.

‍Key factors of the methodology:

Issuer Credit Profile (IDR) - a basic assessment of the risk of default of the issuer and its ability to maintain the program.

Legal & Structural Framework - investor protection, coverage separation, priority requirements, program triggers/tests.

Cover Pool - quality, diversification, credit risk of assets and expected cash flows.

Credit Enhancement & OC - the strength reserve of the structure, liquid reserves and other protection mechanisms.

ALM and Asset-Liability Mismatch & Market Risks - interest/currency/term risk, hedging efficiency.

Operational, service and counterparty risks - servicing, reporting, IT/BCP, risks of key counterparties (accounts, swaps, etc.).

After determining the rating of covered bonds, CIRA further establishes Return Rating (RR)based on Expected Loss (EL = PD * LGD * EAD) with the possibility of aggregation according to scenarios.

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