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 Mercantil Reaseguradora Internacional, S.A. (Mercantil Re) (Panama). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Mercantil Re’s balance sheet strength, which AM Best categorizes as strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
Mercantil Re is the wholly owned startup reinsurer of Mercantil Seguros y Reaseguros, S.A., part of Mercantil group’s international companies controlled by the ultimate parent, Mercantil Servicios Financieros Internacional, S.A., which provides synergies and operating efficiencies. The company was established in 2019 in Panama with the main purpose of supporting group’s regional expansion throughout Latin America.
Mercantil Re’s balance sheet strength is underpinned by its strong risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and also is supported by a well-structured reinsurance program placed with highly rated retrocessionaries, and a conservative investment strategy aimed at providing liquidity and maintaining appropriate asset-liability management. Additionally, the company’s ERM framework is considered appropriate, as it benefits from the group’s guidelines and expertise.
In AM Best’s view, Mercantil Re’s operating performance reflects expenses and dependence upon investment income, given the company’s startup nature. However, AM Best expects underwriting performance in the short term to support profitability, which is likely to break even in 2020, driven by management’s track record in underwriting practices and a diversified reinsurance structure.
Additionally, Mercantil Re’s limited business profile reflects the company’s execution risk driven by its expansion strategy and a strong competitive environment in its target geographic markets.
Positive factors that might improve Mercantil Re’s rating levels or outlooks include targeted geographic premium distribution with underwriting of good quality that supports profitability and a very strong balance sheet assessment. Factors that could lead to negative rating actions include adverse financial performance that leads to a significant deterioration in its risk-adjusted capitalization. Additionally, if AM Best determines that Mercantil Re’s strategic importance to its group has diminished, the ratings also could be downgraded.
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