MEXICO CITY--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb+” of La Colonial, S.A. Compañía de Seguros (La Colonial) (Santo Domingo, Dominican Republic). The outlook of these Credit Ratings (ratings) remains positive.
The ratings reflect La Colonial’s balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
The positive outlooks recognize the improvements made by La Colonial in terms of operating performance and acknowledge the skills of the underwriting team to face the potential challenges of harsher competition during 2019. The ratings also reflect the company’s robust risk-adjusted capitalization, supported by a strong reinsurance program. Partially offsetting these positive rating factors is the competitive environment in the Dominican Republic.
La Colonial is the fifth-largest insurance company in the Dominican Republic, with a 7.3% market share as of April 2019, maintaining a leading position in the Dominican Republic despite changing market dynamics, including the continuous inflow of new health premiums to the system from new competitors. The company has posted adequate profitability and growth to support its results. The company operates as a multiline insurer, and its portfolio is composed of 80% property/casualty, 16% accidents and health and 4% life, based on gross written premium.
In 2018, the company continued its improved combined ratio to levels below 100% because of higher retention and a continuation of expense efficiency. A key year for the resolution of the positive outlooks is 2019, as the company needs to consolidate the improvements achieved in terms of operating performance amidst increased competition in key segments like auto and fire. In this regard, AM Best considers La Colonial’s management team to be well-prepared to manage such competition and to maintain a cost-efficient operation.
La Colonial’s risk-adjusted capitalization remains strong and is supported adequately by a comprehensive reinsurance program that mitigates the potential impact from regional natural disasters on the company’s results. These characteristics are well-reflected in its solvency and capitalization metrics, and its excellent market position. Looking forward, AM Best expects the company to continue performing with premium sufficiency driven by lower technical costs in the medium term, to achieve higher ratings.
Positive rating actions could occur if La Colonial continues to improve its underwriting performance, by achieving greater efficiency and consolidating its positive trend in operating performance, while at the same time, strengthening its capital base through increased profitability. Factors that might lead to negative rating actions include deterioration of its technical income, by either higher operational costs or a decline in the underwriting quality that places more emphasis on financial income to sustain profitability. Any major changes in La Colonial’s capital base, including significant dividends or capital outflows, that diminish AM Best’s view of the company’s risk-adjusted capitalization also could result in negative rating actions.
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