Fitch Upgrades El Pacifico Vida's (Peru) IFS to 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded the international scale local currency Insurer Financial Strength (IFS) rating of El Pacifico Vida Compania de Seguros y Reaseguros (Pacifico Vida) to 'BBB' from 'BBB-'. The Rating Outlook is Stable.

This rating action considers Pacifico Vida's strong and stable profitability, its successful expansion into the traditional life market which benefits its business mix and product diversification in a market where growth prospects are bright but competition is fierce. Furthermore, the improvement of its leverage ratios despite its recent business expansion, jointly with an investment portfolio of good quality within its rating range also benefited its ratings. The Rating Outlook is Stable. The ability of the company to further enhance its capitalization and its investment portfolio diversification could benefit its ratings, although the current sovereign rating could hinder multiple notch upgrades.

Pacifico Vida's ratings reflect its adequate profitability, conservative asset and liability management, strong and diversified distribution channels, ample market share, and improved leverage ratios. Its conservative subscription policies, strong corporate governance rules, and effective management tools also benefit its ratings.

Its association with the largest financial conglomerate in the country, Grupo Credicorp (GC), and own expertise allow the company to leverage its brand and properly diversify its business. As of December 2009, its market share was ample (26% of the life insurance market and 11% of the overall Peruvian insurance market) with no relevant concentration in terms of distribution channels outside those provided by the companies of GC. Its current market share and overall conservative business approach bode well to preserve and/or enhance its market share.

Adequate underwriting tools (and in cases, management decisions to step away from risky market practices) and the good quality of its investment portfolio have yielded good returns in the recent past, with an average ROAA above 3% in the last five years. This trend should be preserved in the medium term.

Given the limitations of the local capital market, Pacifico Vida's investment portfolio shows higher than average exposure to sovereign debt compared to other international players (2.2 times [x] its equity as of December 2009) but is in line with the trend observed in other emerging markets. The company's asset and liability management is conservative. Despite the former, the majority of its investment portfolio (38%) is comprised of investments rated in the 'BBB' range and 27% in securities rated 'A-' or above; the remainder is explained by its investments in the local capital markets that does not carry international ratings, although they are represented by the best local names. Exposure to riskier assets is limited.

Given the significant importance of the annuities business (52% of total technical reserves) and conservative local accounting rules, Pacifico Vida's leverage ratios seem higher than its peers in the region and in the developed markets (liabilities to equity of 6.1x as of December 2009), although the company does not present any financial debt and its ratio of net retained premium to equity of 1.1x is adequate.

Of Pacifico Vida's capital, 62% is controlled by Pacifico Peruano-Suiza Compania de Seguros y Reaseguros (PPS, a company member of GC), and the remainder is controlled by American Life Insurance Company (ALICO). The current shareholder structure could be affected by the recent acquisition offer of ALICO by MetLife. However, at the moment it is too early to judge the final outcome of this financial transaction.

These rating actions reflect the application of Fitch's current criteria which is available on Fitch's website at 'www.fitchratings.com' and specifically include: 'Insurance Rating Methodology', Dec. 29 2009.

Additional information is available at 'www.fitchratings.com'.

Related Research: El Pacifico Vida Compaￃﾱia de Seguros y Reaseguros

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