OLDWICK, N.J.--(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 IRB Brasil Resseguros S.A. (IRB) (Brazil).
The ratings reflect IRB’s balance sheet strength, which A.M. Best categorizes as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The revised outlooks to positive from stable are based on IRB’s enhanced financial flexibility after the IPO in the Brazilian stock exchange last year, coupled with continued strong operating performance in an adverse and still challenging macroeconomic environment, with lower interest rates and a more open and competitive marketplace.
IRB has generated very consistent overall earnings over recent years, driven by investment and underwriting income that are reflected in the company’s favorable return metrics. After Brazil opened its reinsurance market in 2007, IRB experienced volatility in premium volume and underwriting results. However, since that difficult initial transition period, IRB has reformed a book of business that is profitable and highly diversified.
Despite the steady decrease in interest rates, IRB has managed to deliver superior investments returns, which are substantially higher in Brazil relative to current North American/European standards due to higher yields. Brazil’s annual inflation rate has been lower, in the low-single digits since the past year, leading to more significant inflation-adjusted returns. IRB’s return on equity is among the highest for reinsurance companies in the industry. IRB maintains two, somewhat distinct business profiles. Firstly, within Brazil and to some extent, by reputation, other parts of Latin America, IRB is the dominant market participant. Although IRB’s dominance in Brazil translates into a top 30 position in A.M. Best’s World’s Largest Reinsurance Groups ranking, the company is not yet considered a major player in the wider global reinsurance market.
Partially offsetting these positive rating factors is IRB’s exposure to concentration risks related to regulatory, macroeconomic and political dynamics, as well as its concentration of underwriting and investments in Brazil. While IRB has executed plans to mitigate these risks, A.M. Best believes these exposures still present a significant challenge.
Factors that could lead to a rating upgrade include successfully demonstrating the ability to operate in an evolving regulatory environment, an improvement in Brazil’s macroeconomic and political environment, and the successful implementation of the company’s international diversification plans while maintaining strong risk-adjusted capitalization and operating performance.
Rating factors that could lead to negative rating actions include a material decline in risk-adjusted capitalization or operating performance, the unsuccessful execution of the company’s international growth strategy or a downgrade in Brazil’s country risk tier.
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