Fitch Affirms Rimac Internacional's IFS at 'BBB-'; Outlook to Positive

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the international scale local currency Insurer Financial Strength (IFS) rating of Rimac Internacional Compania de Seguros y Reaseguros' (Rimac) at 'BBB-'. The Rating Outlook was revised to Positive from Stable. The Outlook revision is driven by the improved performance of the company after a successful expansion period despite the challenges of a less benign operating environment during 2008 and 2009. The ability of the company to preserve its improved operating results and enhance its leverage in times of expected growth will be key for a future upgrade. A backturn in its leverage and/or profitability will revert the Outlook to Stable.

RIMAC's ratings reflect the company's adequate profitability, moderate liquidity, and its strong market share and diversified business mix. In addition, conservative retention ratios and the adequate quality of its investment portfolio benefit the rating.

After a slight deterioration of its profitability and leverage in 2007-2008, affected mostly by deteriorating underwriting results and rapid expansion, RIMAC was able to strengthen its results despite the volatility of the operating environment based on the strength of its franchise that allowed a significant increase in prices and cleanup of its insured portfolio without losing market share. The expected recovery of economic activity in Peru and the preservation of RIMAC's improved underwriting skills seem promising in the short and medium term, despite the fierce market rivalry of the Peruvian insurance market.

Following a time of extremely cautious investment policy (with large concentrations in short-term bank deposits in local banks), RIMAC has come back to a more profit driven and balanced portfolio management policy, always prioritizing the good credit quality of its fixed income portfolio and adequate asset and liability management. Investment grade securities represent the bulk of its portfolio (70% of total investments as of December 2009), but concentration of Peruvian sovereign debt remains sizable (1.1 times [x] equity), which is a common characteristic in emerging markets. However, exposure to non-investment grade counterparties (120% of its equity, mainly due to its investment in the local capital markets, which don't carry international ratings but are represented by the best local names) and exposure to variable income securities (mostly shares of local blue chips) is still sizable at 28% of its equity.

Despite its vigorous growth and helped by good profitability and a conservative cash dividend policy, RIMAC's leverage ratios have improved to levels aligned with market trend and in line with international best practices for composite insurers. At year-end 2009, the total-liabilities-to-equity ratio improved to 4.0x, while its net-earned-premium-to-equity ratio was 1.8x. It is worth mentioning that 76% of RIMAC's technical reserves are explained by its life insurance business, especially annuities and other products with accumulation features.

RIMAC is the largest insurance company in Peru, operating in all branches and managing close to USD645 million in earned premiums in 2009. RIMAC's owners are related to one of the largest economic groups in Peru, with diverse interest in other financial entities, construction, and export oriented companies.

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: RIMAC Internacional Compania de Seguros y Reaseguros

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