LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a+” of Ocaso, S.A. Seguros y Reaseguros (Ocaso) (Spain). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Ocaso’s excellent risk-adjusted capitalisation, solid operating performance, and strong business profile. Offsetting rating factors include the company’s almost exclusive focus on its domestic market and the impact that the strengthening of legacy funeral expense insurance (“decesos”) reserves has on its performance.
Ocaso’s balance sheet strength remains at an excellent level. Capital and surplus increased at an annual compound rate of 6.1% between 2011 and 2016, supported by strong internal capital generation, reaching EUR 971.8 million at year-end 2016. The company’s risk-adjusted capitalisation is further supported by a modest level of gross premium leverage.
Operating earnings have remained solid over the past five years, and the company has produced combined ratios consistently below 90%. However, Ocaso’s non-life results have been impacted negatively over recent years by increases in reserves for legacy “decesos” books, following regulatory requirements introduced in the Spanish market in 2015. A.M. Best considers that the regulatory reserving schedule for “decesos” policies underwritten before 1999 will continue to have a negative effect on the company’s technical profits in the medium term. Despite the company’s life technical profitability continuing to be impacted negatively by the low interest rate environment, Ocaso reported a life technical result of EUR 1.4 million in 2016. A.M. Best expects the company’s profitability to benefit prospectively from the actions taken to increase the volume of unit-linked business.
Ocaso maintains a well-established competitive position in Spain, benefiting from a strong franchise and a broad distribution network. Moreover, Ocaso has a strong competitive standing in the “decesos” market, with a very stable customer base. Although A.M. Best considers the high concentration in Spain to be a potential source of earnings volatility, with approximately 97% of underwriting revenue sourced from the domestic market in 2016, Ocaso has demonstrated its ability to produce resilient results, even during periods of recession.
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