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 Instituto Nacional de Seguros (INS) (San Jose, Costa Rica). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect INS’ strong capitalization supported by a comprehensive and adequate reinsurance program, improved operating performance and its position as the main insurer in Costa Rica. The ratings also consider INS’ market characteristics derived from the Insurance Law of 2008. This support, however, only guarantees insurance operations in Costa Rica. The ratings are limited by the need to maintain the improved underwriting quality achieved in the medium term.
INS is the largest insurer in Costa Rica with a market share of 77.7% as of December 2016. Market share has decreased due to the aggressive growth of voluntary products within specific market participants. The company has exclusivity on underwriting compulsory workers’ compensation and mandatory auto insurance. INS’ compulsory premium segment represents 30% of its business portfolio and 23% of the industry’s total premiums written. As of December 2016, INS improved its compulsory segment loss ratio to 93%, down from 102% in 2015. As market competition rises, important regional players have claimed more premiums in the voluntary segment, mainly life, property and auto coverages.
The company was able to improve its operating performance during 2016 by cleansing its business portfolio of problematic products, reducing management costs and improving its acquisition costs, all of which led to the combined ratio improving to 89.3% from 97.5%. Additionally, INS benefitted from accounting changes on the workers’ compensation unearned premium reserve, as it decreased the volume of required reserves. The combined effect of these two events enabled the company to report positive technical income for the first time in more than five years. Investment income remained supportive of the company’s performance, based on a conservative investment portfolio. While net income stood at USD 86.9 million, it was affected by the company’s diverse legal contributions required by law, and by a voluntary constitution of equalization reserves for workers’ compensation insurance. Excluding those effects, net income before taxes and legal contributions increased 34% from the previous year.
A.M. Best expects INS to continue improving its business guidelines to face increased competition in the voluntary segments. The company also is in a good position to maintain its strong risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio, due to its good profitability and profit retention policy, as well as adequate reinsurance with highly rated international reinsurers, which provides adequate protection to variations in claim severity and catastrophic events.
Positive rating movements could occur if INS is able to continue its positive trend in underwriting performance and operating efficiency in the medium term, while improving its return metrics and maintaining its strong capitalization. Negative rating actions could occur if technical results deteriorate or there is a reduction in net income, given any kind of loss that significantly affects the company’s profitability and capital generation.
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:
- Catastrophe Analysis in A.M. Best Ratings (Nov. 3, 2011)
- Evaluating Non-Insurance Ultimate Parents (Feb. 24, 2012)
- Evaluating Country Risk (May 2, 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: March 31, 2016
- Date of Financial Data Used: Dec. 31, 2016
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