Fitch Upgrades Maxseguros EPM LTD's Rating to 'BBB+'; Outlook Stable

BOGOTA, Colombia--()--Fitch Ratings has upgraded Maxseguros EPM Limited's (Maxseguros) Insurer Financial Strength (IFS) rating to 'BBB+' from 'BBB'. The Rating Outlook is stable.

KEY RATING DRIVERS

Maxseguros' rating action follows the upgrade of Empresas Publicas de Medellin E.S.P. (EPM) local currency Issuer Default Rating (IDR) to 'BBB+' with a Stable Outlook. Maxseguro's rating is equalized to the rating of its shareholder, EPM. Fitch considers Maxseguros a core subsidiary of EPM based on the methodology for rating captive insurance companies.

Maxseguros's rating also reflects its good operating performance, strong capitalization and liquidity levels, and adequate reinsurance protection.

Maxseguros' status as a core subsidiary of EPM owes much to its strategic importance in managing the risks and structuring the insurance coverage of Grupo EPM. The support of the shareholder is evidenced by the formal support in managing the investment portfolio of the captive; the provision of resources for the optimal operation of the reinsurance company; and the transference of strong corporate governance practices.

Capitalization and liquidity ratios are strong. At Sept. 30, 2014, the liability to equity ratio stood at 1.5x and the coverage of liquid assets over reserves was 14x. The investments are placed in financial institutions with good credit quality and marketable investments in funds concentrated in fixed-income investments.

Maxseguros' profitability is at adequate levels. Currently the reinsurer doesn't retain risks, because of that the net income comes from the ceding commissions and the management fee agreed with EPM for the assistance in the placement of the reinsurance program. At Sept. 30, 2014 Maxseguros reported a net income of USD1.8 million, 26% lower than the previous year (USD 2.6 million Sept. 2013). This performance was as result of lower ceding commissions due to the renewal seasonality of the contracts and costs' optimization in the renewal of the property damage coverage of EPM and subsidiaries.

RATING SENSITIVITIES

The Rating Outlook is stable.

Fitch may consider an upgrade of Maxseguros' rating if EPM's rating is upgraded and Maxseguros continues to have strong operating and financial performance.

Negative changes to EPM's ratings or to its ability and willingness to provide support could result in a downgrade for Maxseguros. However, Fitch views the latter as unlikely due to its captive reinsurer nature.

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

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 4, 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=956835

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Contacts

Fitch Ratings
Primary Analyst:
Franklin Santarelli, +1-212-908-0500
Managing Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Milena Carrizosa, +57-1-326-9999 ext 1090
Director
or
Committee Chairperson:
Julie Burke, +1-312-368-3158
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Franklin Santarelli, +1-212-908-0500
Managing Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Milena Carrizosa, +57-1-326-9999 ext 1090
Director
or
Committee Chairperson:
Julie Burke, +1-312-368-3158
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com