MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Proteccion Agropecuaria Compania de Seguros, S.A.'s (Proagro) International Insurer Financial Strength Rating (IFS) at 'BBB-' and a National Scale IFS rating at 'AA-(mex)'. The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings were assigned based on a stand-alone approach, which means the company is rated strictly based on its individual financial profile. In this case, Proagro's individual assessment becomes the IFS rating. Fitch's decision to use this approach is based on the lack of data to determine the stakeholders' credit profiles and the ability to provide support whenever the insurance company is under pressure. In addition, external barriers may exist that restrict capital/resource transfer among subsidiaries.
The ratings are based on balance sheet, operating performance and other key quantitative strengths relative to specific business sectors, peers, and industry averages, all of which Proagro historically has had a stable performance. Fitch views qualitative factors such as solid statistics inputs for underwriting and sector experience positively. The current rating is constrained by the company's narrow business scope and the challenges of developing in a highly volatile sector dependent on weather conditions and federal catastrophic programs.
Proagro is a specialized company dedicated to agribusiness risk protection mainly in Mexico, but also with a growing share of premiums outside its home country. Proagro's premium portfolio is concentrated in federal programs, which may be unpredictable and depend on political decisions. Catastrophic programs with the Mexican government usually represent 60% of its total portfolio at year-end; however, the company's strategy is open to diversification.
Proagro's average liabilities-to-equity ratio was 2.4x in 2010 - 2014, which is the result of Mexico's stringent insurance regulation, its conservative dividend policy, and internal resource generation. The company's solvency margin exceeds 38% equity.
Proagro has been able to maintain loss ratios below both the market and sector's average, aided by its appropriate underwriting policies and statistical input for decision making. Proagro's earnings depend on the seasonality of its business, low federal catastrophic programs and high retention, which may lead the company to a combined ratio of 92.8% as of September 2016 (December 2015: 81.4). The combined ratio was affected by higher operational costs and an increase of claims ratio.
Proagro has had 96% concentration in federal bonds of since 2013; the five-year average is 86%. Company premiums receivable divided by total assets can change, depending on the season (5% as of September 2016 compared to 7% in December 2015) but liquid assets-to-total technical reserves stood at 1.22x as a five-year average, a ratio at the upper end of its peer's ratios.
Proagro's retention rate of 56.8% falls below the Mexican insurance industry ratio of 82.2% and also below the agricultural sector's 68.3%. However, in Fitch's opinion, the company's retention rate is consistent with its strategy and market positioning. Proagro's reinsurance pool has good credit quality; Munchener is the main participant in Mexican market and participates with 47% of total responsibilities. Regulatory maximum retention limit does not exceed 5% of equity.
RATING SENSITIVITIES
Proagro's ratings have limited upside potential in the short term given its narrow profile and its relevant catastrophic exposures. An increase above 95% of seasonally adjusted combined ratio and recurrent high operating catastrophic and financial losses that undermine Proagro's profitability and equity base may trigger a negative rating action for the company.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings:
Proteccion Agropecuaria Compania de Seguros, S.A
--International IFS Rating at 'BBB-';
--National IFS ay 'AA-(mex)'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub. 15 Sep 2016)
https://www.fitchratings.com/site/re/887191
Metodología de Calificación de Seguros (pub. 19 Oct 2016)
https://www.fitchratings.com/site/re/889422
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016053
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016053
Endorsement Policy
https://www.fitchratings.com/regulatory
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