BOGOTA--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB' local currency Insurer Financial Strength (IFS) rating to EEPPM RE LTD. The Rating Outlook is Stable.
The rating assigned to EEPM RE Ltd (MaxSeguros - captive company) reflects its strategic importance for Empresas Publicas de Medellin E.S.P. EPM (the parent), the strong credit quality of EPM with a local currency Issuer Default Rating (IDR) of 'BBB' and the relatively small size of the reinsurance company in regards with its parent company. Similarly, the rating reflects the non-retention risk policy and the limited exposure of its equity. Also, the high quality of their investment portfolio, strong liquidity levels and comfortable levels of leverage are elements that support the rating.
The financial strength of MaxSeguros is supported on the credit profile of its parent (EPM) which is rated 'BBB' with a Stable Outlook. The rating of MaxSeguros is strongly related with the rating of its parent and any change in the credit profile of the parent would affect the financial strength of the captive company. It is noteworthy that, the EPM's consolidated equity is USD $11.2 billion as of June 30, 2011, while the equity of the captive company is USD$3.9 million (June 2011). EPM's financial profile is strong, characterized by healthy cash flow generation, low leverage and healthy liquidity. As of the last 12 months (LTM) ended June 30, 2011, EPM reported a consolidated EBITDA of USD1.8 billion, showing the availability of the parent to support the subsidiary.
The Rating Outlook is Stable. EEPPM Re's rating is highly tied to the rating of its shareholder, Empresas Publicas de Medellin E.S.P. - EPM. Changes in the rating of the former could result in changes to MaxSeguros' rating.
MaxSeguros is considered a Core subsidiary of EPM, due to its strategic importance in managing the risks and structuring the insurance coverage of the group and the tight linkage that it has with the EPM Risk Management Department. The main objective of MaxSeguros is generating value to EPM Group by unifying insurability's criteria and providing stability in the insurance expenses. Moreover, there is a formal business partnership agreement between EPM and the captive that provides rights and obligations to both parties and the resources necessary for the optimal operation of the captive, especially in regards with, investments, human resources and corporate governance.
MaxSeguros has a moderate profitability which is in line with its own objectives. Currently, the captive company doesn't retain any risk; the coverage where it participates is retroceded to the reinsurance market, mainly concentrated in Lloyd's Syndicates, rated 'A+'.
The investment portfolio quality is high and the liquidity position is strong. The company places its deposits in financial institutions with high credit quality and also has marketable investments in funds concentrated in fixed income investments. The reinsurer doesn't have exposures in fixed assets, reflected in strong liquidity ratios, 4.0 times (x) as of March 2011, measured as liquid assets / liabilities.
MaxSeguros reports adequate capital levels, which is also reflected in low leverage ratios (0.8x as of June 2011). This is primarily due to the non risk retention and the current policy to retain 100% of its profits. Fitch expects MaxSeguros to maintain adequate levels of capital and low exposures, given the short credit history of the reinsurer.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', dated Sept. 22, 2011.
Applicable Criteria and Related Research:
Insurance Rating Methodology
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