MEXICO CITY--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A (Excellent) and the issuer credit rating (ICR) of “a” of Reaseguradora Patria, S.A. (Patria Re) (Mexico). The outlook for both ratings is stable. Additionally, A.M. Best has assigned a Mexico National Scale Rating of “aaa.MX” with a stable outlook to the company.
A.M. Best has also affirmed the ICR of “bbb” of Patria Re’s ultimate parent, Peña Verde, S.A.B. (Peña Verde) (Mexico). The outlook for this rating is stable. Per A.M. Best’s methodology on insurance holding companies, Peña Verde’s rating reflects a standard notching from Patria Re’s ICR and is in line with companies of the same rating level.
The ratings reflect Patria Re’s excellent risk-adjusted capitalization and low underwriting leverage, comprehensive enterprise risk management infrastructure, expansive knowledge of its core Latin American markets, as well as the company’s strong liquidity metrics. Patria Re has established a solid niche position in Mexico and Latin America, which allows it to selectively accept profitable business, while maintaining a diversified product portfolio tailored to specific markets. This strategy has resulted in consistently favorable underwriting results and enhanced Patria Re’s risk-adjusted capitalization.
Offsetting these strengths are Patria Re’s increasing expense structure, the relatively important participation of equities in its investment portfolio and the company’s exposure to severe catastrophic losses. In addition, Patria Re’s risk profile continues to slowly shift as a result of its assumption of exposures outside of its core markets. While this affords Patria Re planned geographic diversification, it is expanding into highly competitive and mature markets. Furthermore, the reinsurance sector as a whole faces significant pricing pressure with third party capital taking a larger share of property catastrophe business and primary companies retaining more business.
At year-end 2014, the company registered a return on equity (ROE) and return on assets (ROA) of (-0.9%) and (-0.5%) respectively, mainly driven by the increase in claims, prudent reserving policies and unrealized losses in its investment portfolio. The negative bottom line results were close to the breakeven point without significantly deteriorating the company’s capitalization. Furthermore, Patria Re continuously reviews its underwriting practices and improvements in practices and improvements in results are already reflected as of June 2015. Unrealized losses in the investment portfolio are not a material problem given the company’s liquidity levels and excellent capitalization levels, according to Best’s Capital Adequacy Ratio (BCAR).
A.M. Best feels that Patria Re is well positioned at its current rating level. Factors that could lead to positive rating actions include continued strong underwriting and overall results in conjunction with maintenance of excellent risk-adjusted capitalization, improvements in the performance of its investment portfolio, as well as continued and successful implementation of its overseas expansion. Factors that may lead to negative rating actions include recurrent outsized catastrophic losses, a sustained decline in underwriting profitability, pressures to realize losses on its investment portfolio, significant deterioration in risk-adjusted capitalization, and unsuccessful implementation of the company’s overseas expansion plans.
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:
- A.M. Best’s Ratings on a National Scale
- Catastrophe Analysis in A.M. Best Ratings
- Evaluating Country Risk
- Insurance Holding Company and Debt Ratings
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
View a general description of the policies and procedures used to determine credit ratings. Also in accordance with Mexican regulations, the following is a link to required disclosures – A.M. Best America Latina Supplementary Disclosure.
- Previous Rating Date: Oct. 24, 2014
- Date of Financial Data Used: June 30, 2015
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