MEXICO CITY--(BUSINESS WIRE)--A.M. Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Instituto Nacional de Seguros (INS) (San Jose, Costa Rica).
The ratings reflect INS’s balance sheet strength, which A.M. Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and adequate enterprise risk management (ERM).
INS’ strongest capitalization is supported by a comprehensive and adequate reinsurance program, improved operating performance and its position as the leading insurer in Costa Rica. The assessment of its business profile considers INS’ market characteristics derived from the country’s Insurance Law of 2008, including its robust market share and the guarantee provided by the Costa Rican government to support INS’ domestic obligations.
INS is the largest insurer in Costa Rica with a market share of 75% as of December 2017. Market share has decreased due to the aggressive growth of voluntary products from specific market participants. The company has exclusivity on underwriting compulsory workers’ compensation and mandatory auto insurance. INS’ compulsory premium segment represents 33% of its business portfolio and 25% of the industry’s total premiums written.
The positive outlooks on the ratings reflect INS’ adequate underwriting and its short-term prospects. As of December 2017, INS improved its underwriting quality by restructuring its product offering and adjusting its underwriting standards for certain lines; this reduced its 2017 combined ratio to 87.8%, down from 94.2% in 2016. Investment income has remained supportive of the company’s performance, based on a conservative investment portfolio. Net income stood at USD 102.7 million, providing a solid growth for its capital base, despite the compulsory 25% dividend paid to the government.
A.M. Best expects INS to continue improving and consolidating its business guidelines by implementing its geographical diversification strategy progressively, which should offset increased competition in the voluntary segments. The company 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 ERM practices, and adequate reinsurance with highly rated international reinsurers, which provides a buffer for 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 while achieving significant geographical diversification, 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, or any 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:
- Evaluating Country Risk (Version Oct. 13, 2017)
- Understanding Universal BCAR (Version Oct. 13, 2017)
- Catastrophe Analysis in A.M. Best Ratings (Version Oct. 13, 2017)
- Available Capital & Holding Company Analysis (Version Oct. 13, 2017)
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: April 27, 2017.
- Date of Financial Data Used: Dec 31, 2017.
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