Fitch Assigns IFS Rating of 'B' to Nacion Reaseguros; Outlook Stable

CHICAGO & SANTIAGO--()--Fitch Ratings has assigned a 'B' Insurer Financial Strength (IFS) rating to Nacion Reaseguros S.A. (Nacion Reaseguros). The Rating Outlook is Stable.

KEY RATING DRIVERS

Nacion Reaseguros S.A.'s ratings reflects Fitch's expectation that the company would receive support from its parent, Banco de la Nacion Argentina (BNA), should the need arise. This view is a result of the reinsurance company's strategic importance to the banking group, high level of management and operational integration, and strong synergies with the parent. It also reflects that any required support would be immaterial relative to the ability of BNA to provide it, given the relatively small size of the insurance operations. BNA is a state-owned bank and its operations are guaranteed by the Argentinian Government. It is one of the largest banks in the country, and together with the insurance subsidiaries, plays an important social role while supporting the government's policies. Fitch rates Argentina's Long-Term Foreign Currency IDR at 'B'/Stable Outlook.

Nacion Reaseguros had an equity base of ARS219 million in March 2016, 489% above minimum regulatory capital requirements. The bulk of capital consists of paid-in capital (82%), which is sufficient to support the company's growth. The company, like other state-owned enterprises, has a conservative dividend policy which in the future will benefit the sustained growth of its capital base.

Nacion Reaseguros, similar to competitors in the Argentine reinsurance industry, has a short financial history that dates back to the end of 2011, when regulations were enacted allowing only companies domiciled in Argentina to operate as reinsurers. As of March 2016, the company held a meaningful share of Argentina's diversified reinsurance market, with 4.3% of the industry's written premiums. Nacion Reaseguros is a leading reinsurer in such lines as fire, technical, and aviation hull insurance.

In March 2016, the company reported a net income of ARS36 million, for a return on assets and a return on equity of 10.4% and 24.4%, respectively. While its combined ratio remains highly competitive (50.1%), Nacion Reaseguros' net income is mainly explained by the large volume of financial income. In March 2016, financial income represented 1.3x of net income, originating primarily from government securities or infrastructure-focused mutual funds managed by the state.

The company's investment portfolio has direct ties to the Argentine government, consisting of short- and medium-term investments from the Central Bank, as well as quotas in Pellegrini Investment Fund, also linked to the Argentine government. Overall, the investments linked to the state account for around 80% of the portfolio.

Nacion Reaseguros accepts premiums only from its related company Nacion Seguros. In Fitch's opinion, Nacion Reaseguros' retrocession program is adequately diversified in a large number of retrocessionaires, using proportional quota share and no-proportional coverage by line of products. In March 2016, the company's maximum per-event exposure represented 13% of its equity.

RATING SENSITIVITIES

The Outlook is Stable. Any changes in Fitch's evaluation of BNA's capacity and/or its willingess to support Nacion Reaseguros, would result in changes to the reinsurer's ratings.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria

Global Bank Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884135

Insurance Rating Methodology (pub. 17 May 2016)

https://www.fitchratings.com/site/re/881564

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011140

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011140

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Esin Celasun
Director
+55-21-4503-2626
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - 401 B,
Rio de Janeiro, RJ, Brazil
or
Secondary Analyst
Santiago Recalde
Associate Director
+56-2-2499-3327
or
Committee Chairperson
James Auden
Managing Director
+1-312-368-3146
or
Media Relations
Alyssa Castelli
+1-212-908-0540
New York
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Esin Celasun
Director
+55-21-4503-2626
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - 401 B,
Rio de Janeiro, RJ, Brazil
or
Secondary Analyst
Santiago Recalde
Associate Director
+56-2-2499-3327
or
Committee Chairperson
James Auden
Managing Director
+1-312-368-3146
or
Media Relations
Alyssa Castelli
+1-212-908-0540
New York
alyssa.castelli@fitchratings.com