LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Solunion Seguros de Crédito, Compañía Internacional de Seguros y Reaseguros S.A. (Solunion) (Spain). The outlook for each rating is stable.
Solunion is the operating holding company of the Solunion group of companies, a 50/50 joint venture established in 2013 between MAPFRE GLOBAL RISKS, Compania Internacional de Seguros y Reaseguros S.A., a wholly owned subsidiary of MAPFRE S.A. (Mapfre), and Euler Hermes Luxembourg Holding S.à.r.l., a subsidiary of Euler Hermes Group SA (Euler Hermes). Allianz SE is the majority ultimate parent of Euler Hermes.
The ratings reflect Solunion’s strategic importance to its joint shareholders as their exclusive writer of trade credit insurance business in Spain and Latin America (excluding Brazil). In addition, Solunion benefits from substantial parental support in the form of a combined 90% quota share arrangement and excess of loss protection, as well as its shareholders’ commitment to sustain its strong capital position.
Additional factors underpinning the ratings are Solunion’s excellent consolidated risk-adjusted capitalisation, the expectation of profitable, albeit volatile, operating earnings that are highly correlated to the macroeconomic environment and its solid competitive profile.
Solunion maintains excellent consolidated risk-adjusted capitalisation, owing to its large capital base and low net underwriting strategy. The group has significant capital buffers to cushion against the effects of a heightened insolvency environment. Furthermore, a prudent reserving approach, as well as conservative investment and reinsurance strategies, support Solunion’s strong balance sheet. In 2015, the group paid a material dividend of EUR 18 million (representing 289% of net income for 2015), which led to a 13.9% decline in shareholders’ funds to EUR 99 million. Nonetheless, A.M. Best expects Solunion to maintain an effective capital management strategy to support its expansion.
The group’s operating performance is improving, with a second year of pre-tax profits that totaled EUR 9.3 million in 2015 (2014: EUR 7.7 million). Results in the first half of 2016 remained positive, in spite of the pressure on premium income owing to the adverse effects of the depreciation of local currencies in Latin America relative to the Euro and the increasingly competitive operating conditions placing downward pressure on premium rates. A.M. Best expects better economic conditions in Spain (representing approximately 70% of Solunion’s gross premium income in 2015), improved quality in the underwriting portfolio and the implementation of Euler Hermes’ robust risk underwriting framework to support prospective profitability.
Solunion’s solid competitive profile is enhanced by the excellent business profiles of its highly rated parents. The group is able to leverage the expertise and capabilities of Euler Hermes, a leading global trade credit insurer, whilst accessing Mapfre’s wide-spread and established sales channels in its target markets. Although the benefits of the group’s affiliation with its high-profile shareholders are recognised, A.M. Best believes that Solunion faces some challenges executing its ambitious growth strategy. These include the competitive dominance of larger market participants, softening rates as insurers seek to recover premium volumes lost during the global and Eurozone financial crisis, and exposure to the high country risk of its target markets, which could result in sudden and unexpected changes to Solunion’s operating environment.
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