MEXICO CITY--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” of ASSA Compañía de Seguros S.A. (ASSA) (Panama City, Panama). The outlook of these Credit Ratings (ratings) is stable. A.M. Best also has affirmed the FSR of A- (Excellent) and the Long-Term ICRs of “a-” of Lion Reinsurance Company Limited (Lion Re) (Bermuda) and Reaseguradora America SPC Ltd. (RAM Re) (Cayman Islands). The outlook of these ratings is stable. All companies are ultimately owned by Grupo ASSA, S.A. (Grupo ASSA), a financial services holding company publicly traded on the Panama Stock Exchange.
The affirmation of ASSA’s ratings reflects the company’s strong risk-adjusted capitalization, good operating performance and well-diversified book of business by both country and business line. A.M. Best considers these positive rating factors as being partially mitigated by the challenges arising from its recent acquisition of the Panamá and El Salvador insurance operations of American International Group, Inc. (AIG) [NYSE:AIG].
ASSA is the main insurance operating company of ASSA Compañía Tenedora, S.A., based on its earnings contribution. As of December 2016, ASSA stood as Panama’s largest insurer based on premiums with a market share of 17.4%. Property/casualty products consisting of auto, property, aviation, marine, surety and other lines accounted for approximately 59% of written premiums in 2016, while personal lines consisting of life and health products, comprised the remaining 41%.
During 2016, ASSA acquired AIG Panama and merged this entity into its own Panamanian operation, which represented 11% of its gross written premium as of September 2016. In October 2016, AIG’s El Salvador operations were acquired by ASSA, representing around 12.5% of ASSA Panama’s gross written premiums. El Salvador operations are expected to be merged with ASSA’s operations during 2017. The impact of these transactions on risk-adjusted capitalization was minimal. Capital outflows were not significant as those were made with gains from the sale of non-computable investment assets for reserve requirements and excess cash. Technical results remained positive despite higher management expenses resulting from non-recurrent charges associated with the merger of the operations.
The positive results reported are evidence of strong enterprise risk management practices, adequate capital management and a successful implementation of the group’s strategy in terms of market expansion and underwriting. For 2017 and 2018, A.M. Best expects ASSA to maintain solid operating performance, market presence and diversification; however, the ratings are limited by the integration risk that still exists regarding the merger of the El Salvador operations.
The performance of Lion Re showed signs of recovery, posting better underwriting metrics despite the increased premium volume derived from ASSA’s and ASSA Compañía Tenedora, S.A.’s acquisition of AIG’s insurance operations, in El Salvador, Guatemala, Honduras and Panamá. Lion Re continues to support the strategy of Grupo ASSA while producing positive bottom line results amid healthy prospects for growth. A.M. Best expects Lion Re to continue playing an important role in Grupo ASSA’s strategy as it consolidates operations in new regions by providing reinsurance capacity while maintaining its good capital position.
RAM Re is registered as a segregated portfolio company, currently integrated by two portfolios, and it is licensed as a Class B(i) insurer under the Cayman Islands’ insurance law. RAM Re ratings are based on the steady performance of its operations, as well as the nature of the portfolios managed. While both portfolios present high leverage, A.M. Best believes that the short-tail nature and non-catastrophic characteristics of the risks insured, combined with their stable operating performance, allows such premium leverage. Capitalization is adequate for RAM Re’s current ratings; however, as the portfolios continue to grow, or as new portfolios are integrated, ratings could become pressured at current capital levels. RAM Re has explicit support from its parent company through a commitment letter provided by Grupo ASSA, enhancing A.M. Best view of its financial strength.
The current rating action on ASSA recognizes the upside of the transaction and its positive effects on the company’s business and financial profiles. In the long term, this could lead to a positive rating action if the company continues to report incremental positive bottom line results while successfully integrating the acquired AIG operations in El Salvador, and is able to further enhance its risk-adjusted capitalization, as measured Best’s Capital Adequacy Ratio (BCAR). Conversely, negative rating action could occur if operating performance, return metrics or risk-adjusted capitalization are affected by the integration of AIG El Salvador, or if underwriting results consistently deteriorate ASSA’s bottom line results.
Drivers that could lead to an upgrade of the ratings or a positive outlook for Lion Re include stable underwriting performance, as well as reduced overall net exposure over the next few years and successful implementation of its strategy within the organization. Factors that could lead to negative rating action include a material loss of capital from either claims or investments, leading to a reduced level of capital that does not support its ratings.
Drivers that could lead to a ratings upgrade or positive outlook for RAM Re include a reduction in premium leverage and continued good underwriting results. Factors that could lead to negative rating action include increased premium leverage derived from increased underwriting, either by growth in volume of its current portfolios or by the inclusion of new ones without adequate capital that supports its current risk-adjusted capitalization.
Lion Re and RAM Re ratings are tied to A.M. Best’s internal assessment of Grupo ASSA; therefore, an unfavorable operating performance or material loss of capital could result in changes to these captives’ ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Analyzing Insurance Holding Company Liquidity (March 25, 2013)
- Catastrophe Analysis in A.M. Best Ratings (Nov. 3, 2011)
- Evaluating Country Risk (May 2, 2012)
- Insurance Holding Company and Debt Ratings (May 6, 2014)
- Rating Members of Insurance Groups (Dec. 15, 2014)
- Rating Protected Cell Companies (March 1, 2012)
- Risk Management and the Rating Process for Insurance Companies (April 2, 2013)
- Understanding Universal BCAR (April 28, 2016)
View a general description of the policies and procedures used to determine credit ratings. For information on the meaning of ratings, structure, voting and the committee process for determining the ratings and monitoring activities, please refer to “Understanding Best’s Credit Ratings.”
- Previous Rating Date: April 1, 2016
- Date of Financial Data Used: Dec. 31, 2016.
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